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METALS-Copper tumbles to 44-month low, more losses expected
March 11, 2014 / 5:57 PM / 4 years ago

METALS-Copper tumbles to 44-month low, more losses expected

* China bonded copper premiums slide $15 to $120-$140 -Shmet

* Worries over copper finance deals continue to weigh on market

* LME nickel prices hit 11-month peak on supply concerns (Adds quotes, updates with closing prices)

By Susan Thomas and Eric Onstad

LONDON, March 11 (Reuters) - Copper tumbled to the lowest levels in over three years on Tuesday as investors and speculators intensified selling because of worries about Chinese demand and liquidation of inventories used for finance deals.

Three-month copper on the London Metal Exchange closed down 2.6 percent at $6,475 a tonne after touching a low of $6,469.75, its weakest since July 2010.

Some traders cited news that a Chinese company, Baoding Tianwei Baobian Electric, had its bonds suspended from trading after losing 5.23 billion yuan ($852 million), according to Xinhua news agency.

This caused further worries after last week’s unprecedented domestic bond default by another Chinese firm, Shanghai Chaori, which implied that even high-yielding debt will no longer carry an implicit state guarantee.

More defaults on shadow-banking credit would strike at the heart of copper financing deals.

“More defaults will come, which is concerning to people who have been China bulls. And there’s really no (copper) demand at the moment in China. The imports were so high at the start of the year so fabricators don’t need to restock,” said analyst Andrey Kryuchenkov at VTB Capital.

A U.S. copper user said Chinese buyers have baulked at taking delivery of thousands of tonnes of copper scrap.

“We’re hearing customers are cancelling orders in China. The Chinese are already attempting to sell scrap in the international market,” he said.

Further downside in LME prices was expected after copper broke below support at $6,602 a tonne, the low of June last year.

“There is still room to fall. You have broken below that significant support, so the next support you could argue is $6,200,” Kryuchenkov added.

Copper financing deals have locked up vast quantities of copper in China and helped to underpin the price of the metal.

Much of the copper China imports is used as collateral to raise funds for China’s shadow banking sector, and a lot of that money has been used to invest in real estate.

Beijing has long tried to tighten credit on financing deals, which have contributed to rising property prices.

Last week’s corporate default was followed by weaker than expected data at the weekend, showing that China’s exports in February tumbled 18.1 percent from a year earlier, raising questions about the health of the top commodities buyer.

“I think it’s a culmination of China worries,” Barclays analyst Gayle Berry said. “We’ve had a few weak data points coming out of China... and then you have concerns about the financial sector restructuring. That peaked when there was news that bond was actually allowed to default.”

Physical premiums for bonded metal in Shanghai continued to slide, dropping $15 to $120-$150 a tonne on Tuesday, according to China price provider Shmet. (www.shmet.com/)

NICKEL GAINS

Nickel was the only LME base metal that managed to stay in positive territory.

It jumped 2 percent to an 11-month peak of $15,762 a tonne, supported by a ban on ore exports from Indonesia, but was later weighed down by fallout from the copper losses and closed up only 0.65 percent at $15,550.

About $500 million a month in ore and concentrate exports have stopped since Indonesia’s imposition in January of new mining rules that included a ban on nickel ore. The country was previously the world’s top exporter of the metal.

Zinc failed to trade in closing rings, but was last bid down 1.9 percent at $2,002 a tonne. Zinc gained about 9 percent from early February to early March, but has since slid along with other base metals.

While many investors expected prices to rally based on forecasts that shortages will develop following the closing of large mines, analyst Jessica Fung at BMO Capital Markets said that was already in the price.

“BMO Research has adjusted its supply-demand model and forecasts a relatively tight market in 2014, but zinc prices appear to already have factored in favourable fundamentals and there is therefore little price upside near term,” she said in a note.

Aluminium dropped 1.4 percent to finish at $1,750.50 a tonne, lead closed 1.65 percent weaker at a five-month low of $2,049.50 and tin edged down 0.13 percent to end at $22,870.

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 = 6.1402 Chinese Yuan) (Additional reporting by Josephine Mason in New York; Editing by Anthony Barker)

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