METALS-Copper falls on worries over China tightening

Wed Oct 23, 2013 12:22pm EDT

* Some Chinese banks tripled writeoffs on bad loans

* Commerzbank wary about nickel rally continuing

* Loose Fed policy whets appetite for aluminium financing

By Maytaal Angel and Eric Onstad

LONDON, Oct 23 (Reuters) - Copper slid more than 2 percent on Wednesday as fears of tighter monetary policy in top metals user China outweighed speculation that tepid U.S. jobs data will deter the Federal Reserve from tapering its stimulus this year.

Some of China's big banks were tripling writeoffs on bad loans, according to reports. Short-term Chinese money rates surged on the policy concerns.

China consumes about 40 percent of the world's copper.

Benchmark three-month copper on the London Metal Exchange failed to trade in closing open outcry activity, but was last bid 2.2 percent at $7,171 a tonne. This more than cancelled out the previous session's 1.2 percent gain.

Copper hit a one-month high on Tuesday after the first U.S. jobs report since the partial government shutdown suggested that the economy had lost steam, supporting expectations that the Federal Reserve will delay tapering its stimulus programme.

Nine of 15 U.S. primary dealers surveyed by Reuters on Tuesday now expect the Fed to begin slowing its $85 billion-a-month bond-buying programme in March.

"The fed tapering (delay), the global economy strengthening slowly - these factors help solidify the (copper price) floor, but what is the bullish trigger to break out of the range? I don't see it," Societe Generale analyst Robin Bhar said.

"There's more supply coming through. Is China going to be aggressively pushing its economy forward, the answer is no, (so)more rangebound trading will continue to the year end at least."

Copper prices hit the highest since Sept. 20 on Tuesday at $7,350 a tonne but have been in a broader $7,000-$7,420 band since early August.

While the prospect of extended U.S. monetary stimulus is supportive for metals, sluggish U.S. growth is doing little to improve copper's demand outlook amid rising supply. The market is seen in a surplus both this year and next.

Bond buying helps to prop up commodities by allowing greater liquidity for both business and investors, while weakening the dollar, which makes dollar-priced commodities less expensive for holders of other currencies.

The U.S. currency tentatively steadied near a two-year low versus the euro on Wednesday after its latest slide.

In China, a government source said it will retain a ban on overseas commodity exchanges setting up warehouses there, dashing expectations for London Metal Exchange warehouses in the newly launched Shanghai free trade zone.

WARY ABOUT NICKEL UPSIDE

Nickel prices also backtracked after surging on Tuesday to the highest levels in about two months on worries about a planned export ban in Indonesia next year.

Commerzbank said those concerns were overblown and that any shortfall from Indonesia could be made up from rival producers such as Philippines and from ample inventories.

"We therefore see only limited upside potential for the nickel price," it said in a note.

"By the end of 2013 we envisage a nickel price of $14,600 per tonnne, and expect to see nickel trading at $15,400 per ton on average next year."

LME nickel closed down 1.7 percent at $14,595 a tonne after gaining 3.4 percent on Tuesday and touching a high of $14,880.

Packaging metal aluminium fell 1.9 percent to $1,844 a tonne, having hit its highest since late August on Tuesday.

Shares of top aluminum producer Alcoa Inc made their biggest one-day move in nearly two years on Tuesday. While the reasons were unclear, there is some speculation that the prospect of delayed tapering of U.S. monetary stimulus has whetted appetite for aluminum financing.

Zinc finished 1.5 percent lower at $1,932 a tonne and tin shed 1.7 percent to close at $22,800 a tonne. Lead failed to trade on the kerb and was last bid at $2,172.50, down 1.5 percent.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminum

Most active ShFE aluminum

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin

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