* LME stock tightness offsets poor U.S., China factory
* Interest in CME aluminium premium contract picks up
* China markets closed until Friday
(Updates with closing prices)
By Maytaal Angel and Harpreet Bhal
LONDON, Feb 4 Copper steadied on Tuesday after
hitting a fresh two-month low, as investors weighed near-term
supply tightness against tepid U.S. and Chinese factory data and
an emerging markets selloff.
Daily London Metal Exchange data showed copper stocks fell
to 313,275 tonnes, their lowest in over a year, with up to 60
percent of that figure booked to leave warehouses and so
unavailable to the market. MCUSTX-TOTAL
But weighing on copper, U.S. manufacturing activity slowed
sharply in January on the back of the biggest drop in new orders
in 33 years while construction spending barely rose in December,
pointing to some loss of steam in the economy.
In China, factory growth eased to an expected six-month low
in January, hurt by weaker local and foreign demand, heightening
worries of an economic slowdown.
Three-month copper on the London Metal Exchange
closed at $7,041 a tonne, up from a close of $7,038 on Monday.
It earlier hit $7,016, its lowest since Dec. 4, and is down some
4 percent since Jan. 21.
"There's some buying interest because the emerging-market
crisis is going to be temporary and is not going to include a
meltdown in China," said Jesper Dannesboe, senior commodity
strategist at Societe Generale.
"If you see it that way, at some stage copper is going to be
a buy because the fundamentals keep tightening. (Also) it's hard
to believe that the U.S. recovery has stalled, because it was
Emerging market stocks trimmed losses on Tuesday after
hitting a five-month low, while most currencies rebounded as
investors paused a selloff that had been triggered a day before
by concern about Chinese and U.S. growth prospects.
The U.S. Federal Reserve, bolstered by long-standing signs
of recovery in the world's largest economy, is reducing its huge
monetary stimulus - a move that has partly prompted the bruising
selloff in emerging markets.
Financial markets in those countries have boomed in recent
years as the Fed's measures to bolster economic growth at home -
including ultra-low interest rates - encouraged investors to
seek higher returns in emerging economies.
China's government, meanwhile, wants to reduce reliance on
the investment and exports that have fuelled economic growth in
the past three decades in favour of consumption and services,
which it thinks will provide lower but more sustainable growth.
China, the world's largest copper consumer, is on a
week-long Lunar New Year holiday which began late last week.
Chinese markets will reopen on Friday.
"We may see a relatively quiet period for the balance of the
week, but I suspect that weakness in both the equity and
commodity markets could resume once China comes back from
holidays next week," Ed Meir, analyst at INTL FCStone said.
Aluminium, which hit a four-and-a-half-year low of
$1,671.25 a tonne on Monday as a global surplus weighs, ended at
$1,689 from a close of $1,677 a tonne on Monday.
"With macro fundamental factors also weighing on commodity
sentiment, aluminium looks set for a rough ride," broker Triland
said in a note.
This may ring true in particular for a single large holder
of long aluminium positions on the LME, equivalent to 30-39
percent of outstanding LME open interest in February, LME data
shows. <0#LME-FBR> MAL-OI-P1
The position is roughly equivalent to 890,000-1.15 million
tonnes, or $1.5-$1.9 billion at current prices.
"By the looks of things, there will be someone in pain ...
lots of consumers who hedged around $1,750 are all underwater as
well," said a trader based in Singapore.
Physical players are getting hit by high premiums while
speculators have been caught because they bought too early, the
Turnover in CME Group Inc's nascent aluminium
premium contract has picked up since the start of the year as
industrial users seek to protect themselves against further
gains in physical prices, data and market participants said.
Zinc closed at $1,951 from $1,956, lead
ended at $2,093.50 from $2,083.50, tin ended at $22,175
from $22,125 and nickel closed at $13,850 from $13,880.
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
(Additional reporting by Manolo Serapio Jr. in Singapore and
Melanie Burton in Sydney; Editing by Dale Hudson, Anthony Barker
and David Evans)