METALS-Copper falls on Chinese credit worries, slower European growth

Thu Oct 24, 2013 12:24pm EDT

Related Topics

* China central bank declines cash injection for third day

* Chinese manufacturing picks up in October

* Reuters poll shows analysts bearish on copper for 2014

By Eric Onstad and Harpreet Bhal

LONDON, Oct 24 (Reuters) - Copper dipped to its lowest level in nearly two weeks on Thursday as persistent concerns about credit tightening in top metals consumer China offset upbeat manufacturing growth there.

A surprise setback in business growth in the euro zone also helped dampen investor appetite for copper and other industrial metals.

Three-month copper on the London Metal Exchange touched its lowest level since Oct 11 at $7,137 a tonne during the session, before staging a rebound in late-trade to end at $7,175 a tonne, flat from a last bid of $7,171 on Wednesday.

The market remained concerned about a cash crunch in the world's second-biggest economy after China's central bank declined to inject cash for a third day.

"If you look back at the Chinese experience in 2007, this is quite similar. The initial spike in repo rates was followed by some aftershocks that were caused by stealth tightening," said Vicky Sanders, head of analytics sales at broker Marex Spectron.

"It seems to me a similar situation is happening in China at the moment and any tightening in China is a challenge for base metals."

Copper prices have traded in a $7,000-7,420 band since late August and remain down by about 9 percent this year.

The metal is expected to end the year 8 percent lower, and tumble further in 2014 as demand struggles against strong supply growth from new and existing mines, a Reuters poll showed.

Helping limit falls, however, was a survey showing activity in China's giant manufacturing sector picked up in October, suggesting the economy may have stabilised even though a strong rebound remains elusive.

"This figure reflects the trend towards improving economic data in China and shows that the country's economy remains on the up," Commerzbank analysts said in a note.

SURPLUS MARKET

Also weighing on prices were expectations of a surge in supply in the market. Analysts polled by Reuters expect the copper market to post a surplus of 182,000 tonnes this year, before ballooning to 328,000 tonnes in 2014.

Currently the copper market is largely in balance, but rising supply will shift that next year, said Paul Dewison of consultancy Intierra.

"The fourth quarter we see as being sharply in surplus, as concentrate stocks go to refined (metal). Longer term, we are looking at surplus, at about 350,000-400,000 tonnes in both 2014 and 2015," he told the Reuters Global Base Metals Forum.

LME nickel ended at $14,650 a tonne, from a close of $14,595 on Wednesday, after strong gains in recent weeks on worries about a planned export ban in Indonesia.

Despite falling 1.7 percent on Wednesday, nickel is still the best-performing LME base metal this month with a 6 percent rise.

Sanders said more gains were likely. "A lot of the move higher we've seen in nickel over the last couple of weeks has been short-covering. The nickel market is still short so this could continue."

Aluminium ended at $1,861 from a close of $1,844 on Wednesday, zinc closed at $1,936 from $1,932 and tin ended at $22,875 from $22,800.

Lead closed at $2,173.50 from a last bid of $2,172.50 on Wednesday.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

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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