METALS-Copper hits 1-week low on Chinese probe talk

Trade the News

Saturday September 11, 2010 09:26:10 AM GMT

* Talk of Chinese probe into rubber triggers sell-off

* Zinc pares losses after 6.5 percent fall

* Dollar index flat, equities edge up

(Recasts, updates prices and comments, previous SINGAPORE)

By Humeyra Pamuk

LONDON, Sept 9 (Reuters) - Copper dropped to a one-week low on Thursday following a sharp fall in Chinese commodity markets but rising equity markets and dollar weakness helped recover some of its earlier losses.

Market talk of Chinese authorities launching an investigation into the rubber market has triggered a sell-off in Chinese commodity markets, which spread to the London Metal Exchange prices in early trading hours.

Benchmark copper for three months delivery on the London Metal Exchange was down at $7,579.25 a tonne by 1007 GMT, versus $7,675 a tonne at the close on Wednesday.

The metal, used commonly in wiring and construction sector, bounced from a low of $7,460 a tonne it hit earlier, its lowest since September 1.

"There's panic going on in China and it's putting down the LME," analyst David Wilson at Societe Generale said.

"The concern is that this could happen in other commodities or is already happening," said an LME trader. "If that's the case and if you're long you'd rather take the profit and move out now," he added.

BOUNCE

Prices have trimmed some of their initial losses. Other markets that the metals take their cue from such as equities and currency markets provided some support.

The dollar was flat against a basket of currencies, trimming its earlier gains while European equity markets edged higher.

Copper tends to move in line with the equity markets, while a weaker dollar makes the metal cheaper for non-U.S. currency holders.

The red metal, used in power and construction, touched a four-month high on Friday at $7,750 a tonne, boosted by better than expected macro data in the United States and China.

"We've had a pretty significant rally over the last week. Traders usually look to take profits after that," Wilson said, adding that there hasn't been much supportive news since then.

But the fundamental picture looked solid, traders said, with LME copper inventories standing at 393,375 tonnes, having fallen from 6-1/2 year highs at 555,075 tonnes in mid-February.

In other metals, LME zinc trimmed losses to trade at $2,170 a tonne, after tumbling 6.5 percent to $2,075.25 a tonne and compared with Wednesday's close of $2,219 a tonne.

"Zinc open interest is down 50,000 lots. It looks like someone was dumping zinc, taking profits and met no buyers and it spread to the rest of the ma arket," a trader in Shanghai said.

Aluminium traded at $2,138 a tonne versus $2,160 on Wednesday. LME stocks for the metal, used in transport and packaging, dipped 5,150 tonnes to remain near record levels at 4.41 million tonnes.

A large portion of those aluminium stocks are tied up in finance deals.

Steel making ingredient nickel traded at $22,705 from $22,900 while battery material lead was at $2,200 from $2,234. Tin was at $21,500 a tonne from Wednesday's $21,675 a tonne.

For a graphic of LME prices and volumes, click: http://graphics.thomsonreuters.com/AS/0810/NT_20100909115049.jp g Metal Prices at 1006 GMT Metal Last Change Percent Move End 2009 Ytd Percent

move #VALUE! LME Alum 2133.00 -27.00 -1.25 2230.00 -4.35 LME Cu 7572.00 -103.00 -1.34 7375.00 2.67 LME Lead 2196.00 -38.00 -1.70 2432.00 -9.70 LME Nickel 22575.00 -325.00 -1.42 18525.00 21.86 LME Tin 21425.00 -250.00 -1.15 16950.00 26.40 LME Zinc 2163.00 -56.00 -2.52 2560.00 -15.51 SHFE Alu 15490.00 -195.00 -1.24 17160.00 -9.73 SHFE Cu* 58600.00 -1210.00 -2.02 59900.00 -2.17 SHFE Zin 17550.00 -520.00 -2.88 21195.00 -17.20 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Additional reporting by Nicholas Trevethan in Singapore; editing by Keiron Henderson)

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