METALS-Copper falls for second day as China worries resurface

Tue Feb 25, 2014 12:15pm EST

Related Topics

* China domestic copper prices trade at a discount to ShFe

* Concern about tin volumes on Indonesia trading platform (Adds closing prices)

By Eric Onstad

LONDON, Feb 25 (Reuters) - Copper fell for a second day on concern about the impact of slower growth in China and its volatile property sector on metal inventories.

Copper has been hit harder than other industrial metals due to worries about inventories in China linked to financing deals, said Stephen Briggs, metals strategist at BNP Paribas.

"Given that the type of companies that are doing these finance deals are often one way or another linked to the property market themselves, if you get a big problem in the property market it might mean the unravelling of some of these deals," Briggs said.

Copper sank on Monday after Chinese news reports stoked fears that banks had stopped extending loans to property-related companies, worsening sentiment already dampened by ample supply and a slow start after the Lunar New Year holiday period.

LME copper inventories MCUSTX-TOTAL fell by 3,325 tonnes on Tuesday and are down about 60 percent since last June while stocks in China have increased this year.

In another indication that China is amply supplied with copper, domestic physical copper prices have traded at a discount against front-month prices on the Shanghai Futures Exchange (ShFE) this week, reversing a small premium seen earlier in February.

"There's the sense that GDP growth in China is going to be pretty feeble by China standards, and property is the tail risk of something worse than that."

Three-month copper on the London Metal Exchange ended down 0.18 percent to $7,064.50 a tonne, after falling 1.1 percent in the previous session.

Copper hit its lowest level since Feb. 6 on Monday at $7,033 a tonne, and was down 4 percent on the year.

The most-traded May copper contract on ShFE traded down 0.8 percent at 49,520 yuan ($8,100) per tonne after touching a three-month low.

DEEPER TIN DEFICIT?

Analyst Mark Keenan of Societe Generale in Singapore said bad weather in the United States had clouded its economic picture and the Chinese Lunar New Year had distorted economic signals.

"You've got a mixed picture ...Hence the price of copper is stuck in this $200 range until we really get some clarity. Certainly the PMIs will give us some help there," Keenan added.

One reading on the health of China's vast factory sector, the official Purchasing Manager's Index, is due on March 1.

Copper got little support from the latest U.S. economic data point, which showed consumer confidence sagged in February as expectations worsened.

Tin was the best LME performer on Tuesday, ending up 1.41 percent to $23,300 a tonne, extending its run as the strongest LME metal this year with a gain of over 4 percent.

Briggs said trading volumes on Indonesia's sole tin trading platform, run by the Indonesia Commodity and Derivatives Exchange (ICDX), have been paltry recently.

"The trading information from the ICDX suggests that after a flurry in December, the amount of trading is not enough for Indonesia to export what it normally exports," he said.

"The deficit that the market will feel may be even bigger if Indonesian exports are curtailed. I'm still quite bullish about tin."

Aluminium ended up 0.51 percent at $1,771 a tonne, zinc was last bid up 0.20 percent at $2,045 a tonne, lead ended down 0.56 percent at $2,120 a tonne and nickel closed down 0.21 percent at $14,300 a tonne.

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

($1 = 6.0984 Chinese yuan) (Additional reporting by Melanie Burton and Maytaal Angel; Editing by William Hardy and David Evans)

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