METALS-Copper hits 1-week low on U.S. shutdown

Wed Oct 2, 2013 8:19am EDT

* Investors concerned about growing surplus

* Dollar and shares weaken on U.S. government shutdown

* Liquidity thin with China away for holiday

By Maytaal Angel and Freya Berry

LONDON, Oct 2 (Reuters) - Copper hit a one-week low on Wednesday as worries about the wider impact of the first partial U.S. government shutdown in 17 years cut risk appetite, with a weaker dollar limiting losses.

Benchmark three-month copper on the London Metal Exchange traded down 0.22 percent at $7,182 a tonne in official midday rings, from a close of $7,199 on Tuesday. The contract earlier touched a low of $7,142, its weakest since Sept. 24.

As the U.S. government shutdown entered a second day, President Barack Obama scaled down a long-planned trip to Asia.

The dollar weakened to its lowest since late August against the yen and shares lagged as investors feared that the deadlock over the Congress funding row could drag on, and worries grew about its implications for talks on raising the U.S. public debt ceiling later this month.

A weaker dollar makes dollar-priced metals cheaper for non-U.S. investors.

Investors are also concerned about a looming copper market surplus that has come just as top consumer China's stellar appetite for some commodities weakens.

"Prices have weakened on the U.S. situation ... but the reason that base metals are more affected (than equities) is because there's an underlying current in copper where the fundamentals have deteriorated," said Stephen Briggs, strategist for BNP Paribas.

"The latest Chinese data was not that brilliant," he added. "It's just not the dynamic force it once was. It's good but not great anymore."

Trading volume was thin with China, which accounts for 40 percent of global refined copper demand, away until Oct. 7 for National Day holidays. Copper has lost nearly 10 percent this year.

As a result of the U.S. shutdown, investors may be unable to take cues from key U.S. government data, such as the monthly jobs report that is due on Friday but will not be released if a deal is not reached by then.

A drop-off in U.S. economic data at a time when the Federal Reserve has muddied expectations on when it will start reducing its stimulus could hit demand for risky assets such as copper.

Sijin Cheng, commodity analyst at Barclays Capital, said while the shutdown and a lack of liquidity have been a drag on copper, prices are poised to drop further as supply outpaces demand.

"We still think that the increasing supply will take the spotlight," said Cheng, who sees cash copper CMCU0 averaging $6,850 in October-December, with a global surplus of 373,000 tonnes for the period.

The first significant private survey after the shutdown began - the Institute of Supply Management's report on manufacturing - showed the fastest expansion in almost 2-1/2 years, which helped Asian stocks and the dollar.

Soldering metal tin was untraded in rings, but last bid was down 1.41 percent at $22,725 a tonne in official rings against $23,050 on Tuesday, having earlier hit a near-three week low of $22,550. Aluminium was last bid down 0.33 percent at $1,820.

LME nickel was last bid down 0.36 percent to $13,700 against a previous close of $13,750 per tonne, its worst performance since the end of July. The stainless-steel ingredient has fallen 20 percent this year.

Zinc was traded down 0.56 percent at $1,866 a tonne, from $1,878 on Tuesday, while lead traded down 0.05 percent at $2,064 from a previous close of $2,065.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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