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

Trade the News

Friday September 10, 2010 04:51:14 AM GMT

* Talk of Chinese probe into rubber mkt triggers sell-off

* Zinc pares losses after 6.5 percent fall

* Dollar index down, equities rise as U.S. data supports

(Updates prices, adds details/fresh quote)

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 it recover some of the earlier losses.

Market talk that Chinese authorities were launching an investigation into trading on the Shanghai rubber market triggered a sell-off in China's commodity markets, which spread to Europe in early trading hours.

Benchmark copper for three months delivery on the London Metal Exchange was down at $7,589 a tonne by 1416 GMT, versus $7,675 a tonne at the close on Wednesday.

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

"For the next couple of weeks, prices could move lower on the potential of this investigation but ... we're (still) looking for copper to move through $8,000 a tonne this year," said John Meyer, an analyst at Fairfax.

"Asia, led by China, is seen as continuing to show strong growth, and there are some indications of further tightening in the copper market."

Commodity markets in China, the world's top copper consumer, took a beating overnight on talk of the probe.

"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."

BOUNCE

Copper trimmed some of its initial losses, however, as equity and currency markets provided some support.

Equity markets hit four-month highs in Europe and rose at the open in the United States after lower-than-forecast jobless claims and trade deficit numbers brightened prospects for economic growth.

The dollar fell versus a basket of currencies, making dollar-priced metals cheaper for European investors.

The fundamental picture for copper looked solid, traders said, with LME 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 $2,175.50 a tonne compared with Wednesday's close of $2,219, after tumbling earlier 6.5 percent to $2,075.25 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 market," a trader in Shanghai said.

Aluminium traded at $2,125 a tonne versus $2,160 on Wednesday. LME stocks of 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 $22,749 from $22,900.

The discount for cash nickel over the three-month benchmark has narrowed to just $9 a tonne from $70 in mid-June, while there is a premium for October versus November nickel.

In a well supplied, liquid market, nearby prices usually trade at a discount to those further out in the future.

However, LME nickel stocks have fallen 1,554 tonnes since early September to 118,956 tonnes, which is equal to about 8 percent of global demand, while a single entity holds 30-40 percent of nickel warrants and cash positions.

Battery material lead was at $2,211 from $2,234, while soldering metal tin was at $21,750 a tonne from Wednesday's $21,675 a tonne, having earlier hit $21,800, its highest since August 2008.

Tin, the LME's top performer, has been driven up in recent months as stocks retreat, demand steadies and supply constraints continue in top exporter Indonesia.

Metal Prices at 1422 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Percent Move End 2009 Ytd Percent

move COMEX Cu 345.15 -4.20 -1.20 334.65 3.14 LME Alum 2124.00 -36.00 -1.67 2230.00 -4.75 LME Cu 7593.00 -82.00 -1.07 7375.00 2.96 LME Lead 2207.00 -27.00 -1.21 2432.00 -9.25 LME Nickel 22625.00 -275.00 -1.20 18525.00 22.13 LME Tin 21700.00 25.00 +0.12 16950.00 28.02 LME Zinc 2172.00 -47.00 -2.12 2560.00 -15.16 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 ** Benchmark 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; and Maytaal Angel in London. Editing by Keiron Henderson and Jane Baird)

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