METALS-Economic, demand uncertainty weighs on copper

Trade the News

Thursday August 26, 2010 05:41:10 AM GMT

* Prospects dim for industrial metals demand

* Small discount for aluminium tom/next

* Coming up: U.S. July durable goods orders at 1230 GMT

(Recasts, adds comment/details, pvs Singapore)

Pratima Desai

LONDON, Aug 25 (Reuters) - Bargain hunters helped steady copper on Wednesday, but concern about economic and demand prospects were expected to limit gains ahead of data from the United States, the world's largest economy.

Battery material lead and stainless steel ingredient nickel hit $1,988 and $20,370 a tonne respectively -- their lowest since late July on expectations of surpluses.

Benchmark copper on the London Metal Exchange was trading at $7,132 a tonne at 1026 GMT from $7,137 at the close on Tuesday when the metal used in power and construction touched $7,105 a tonne, its lowest since July 28.

Selling on Tuesday was sparked by the plunge of sales of previously owned U.S. homes in July to their slowest pace in 15 years, underlining the housing market's struggle to find its footing without government aid.

"We could see renewed selling pressure if we get more disappointing economic data today," said Daniel Briesemann, analyst at Commerzbank, referring to U.S. new home sales and durable goods orders for July.

"Lower prices are attracting buying by consumers."

Copper hit a two-week high of $7,496 a tonne on Aug. 19.

Helping sentiment was LME stocks of copper. Latest data showed a 1,400 tonne fall to 402,425 tonnes -- only about 8 days of consumption -- a gain of more than 25 percent since the middle of February.

Nickel stocks in LME warehouses rose 792 tonnes to 118,302 tonnes -- about 30 days consumption. Latest stock number shows a gain of 3,000 tonnes since Aug 18.

"There's a lot of nickel around, people thought the market would see a deficit this year, but that may not be the case," a trader said.

ALUMINIUM SUPPLIES INTACT

Three-month nickel was trading at $20,425 a tonne from $20,600 on Tuesday and lead was at $1,998 from $2,013.

Traders said news that the global lead market saw a surplus of 50,000 tonnes in the first six months of the year had also surprised as expectations only last month were for a small deficit.

Aluminium, used in power and packaging, was trading at $2,029 a tonne from $2,028 on Tuesday when it touched a month low of $2,010 on expectations of a large surplus this year, given growth in capacity and output.

The spotlight was on the spread between LME aluminium to be delivered on Thursday and bought back Friday -- tom/next -- often a way of lending material to the market.

The tom/next premium was at a small discount $0.35 a tonne from a premium on Tuesday. But traders say the story may still have some weeks to run as the significant long positions battle it out with the shorts.

"The tightness in the spot market was primarily caused by the low availability of deliverable with a large bulk tied in financing deals," VTB Capital said in a note.

Financing deals are said to have tied up about 70 percent of LME aluminium stocks, which stand at above 4.45 million tonnes. They help banks earn higher returns than they would in money markets and release cash for producers.

Worries about nearby supplies finally pushed the spread between the cash aluminium contract and the three-month contract into premium territory -- around $2 a tonne from a discount from a contango above $30 a tonne in June.

Eyes were also on large positions holdings of LME stock warrants and cash contracts on aluminium alloy, North American aluminium alloy, copper, nickel, lead and tin.

Concern of shortages of aluminium alloy has seen the premium for cash material over the three-month contracts to above $100 a tonne from a small discount in early July.

Zinc was at $1,995 a tonne from $1,991 on Tuesday tin and $20,350 a tonne from $20,400.

(Reporting by Pratima Desai;editing by William Hardy)

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