METALS-Copper slips on firm dollar, risk aversion

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Tuesday September 07, 2010 03:51:12 AM GMT

* Risk aversion returns on European banking concerns

* Dollar firms, as investors await U.S. open

(Updates official prices, adds detail)

By Michael Taylor

LONDON, Sept 7 (Reuters) - Copper prices fell 2.5 percent on Tuesday, moving away from four-month highs as a strong dollar and risk aversion weighed on industrial metals.

Benchmark copper for three-month delivery on the London Metal Exchange traded at $7,520 a tonne from $7,705 at the close on Monday and compared with a session low at $7,496.25.

"The dollar is stronger and equities are down," said Andrey Kryuchenkov, analyst at VTB Capital. "Copper and aluminium have seen quite a significant move lower but it's only logical after the recent run higher."

"People are still concerned about Europe's banks," Kryuchenkov added. "(But) the U.S. was closed yesterday (for Labor day) so it has also been a bit quieter."

European shares slipped, while the euro fell broadly, after a Wall Street Journal report on the recent stress tests renewed concerns over the sector's health.

A firmer U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

Investors were also focused on an announcement by Germany's banking association that the country's 10 biggest banks may need 105 billion euros of additional capital under revamped rules.

On Friday, copper hit a session high of $7,750, its highest since late April, as investors bet on improved demand following better-than-forecast jobs data in the United States, the world's largest economy.

But economic data, which has driven base metal prices higher in recent days, was sparse outside China's import data on Friday.

SUPPORTING FACTORS?

Support for metals could come as U.S. President Barack Obama pledged a $50 billion road, rail and runway infrastructure programme as a means to boost employment.

He also proposed to let firms write off 100 percent of their spending on plant and equipment.

Analysts said upward pressure on some base metals may come from a renewed push for energy efficiency in China, a leading base metals consumer and producer.

"China is in the process of cutting production of metals produced in polluting and energy intensive processes," said investment bank Fairfax in a note. "This could cause key metals prices to rise while demand growth continues."

Inventory levels are also seen as a good demand indicator.

Latest LME data showed that on Monday, copper stocks slipped 1,400 tonnes to 395,475 tonnes, having fallen from 6-1/2 year highs at 555,075 tonnes in mid-February.

Aluminium traded at $2,137 in LME rings versus a last bid at $2,193 on Monday. LME stocks for the metal, used in transport and packaging, fell 4,575 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 $21,675 in exchange rings from $22,150 while battery material lead was at $2,150.50 from $2,197.

"What went up yesterday, has come down today," said William Adams, analyst at an analyst at BaseMetals.com. "Likewise we saw dollar weakness yesterday but a bit of dollar strength today.

"Everybody is waiting to see how the United States follows through."

Zinc traded at $2,164 a tonne in LME rings from $2,196 and tin was at $20,800 from $20,850.

Worries about tin supplies persist because of a dominant position controlling between 50-80 percent of cash warrants on LME stocks.

Metal Prices at 1215 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 343.65 -6.00 -1.72 334.65 2.69 LME Alum 2127.00 -21.00 -0.98 2230.00 -4.62 LME Cu 7540.00 -165.00 -2.14 7375.00 2.24 LME Lead 2150.00 -47.00 -2.14 2432.00 -11.60 LME Nickel 21575.00 -575.00 -2.60 18525.00 16.46 LME Tin 20750.00 -100.00 -0.48 16950.00 22.42 LME Zinc 2161.00 -35.00 -1.59 2560.00 -15.59 SHFE Alu 15725.00 30.00 +0.19 17160.00 -8.36 SHFE Cu* 59710.00 -820.00 -1.35 59900.00 -0.32 SHFE Zin 17960.00 -130.00 -0.72 21195.00 -15.26 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Reporting by Michael Taylor; editing by Anthony Barker)

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