Friday, March 29

China, inventories and dollar push copper to 5-1/2 month low


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LONDON — Copper prices hit 5-1/2 month lows on Wednesday, coming under pressure from deteriorating demand prospects in top consumer China, climbing inventories in London Metal Exchange (LME) approved warehouses and a higher dollar.

Traders said profit taking on short positions – bets on lower prices – later helped copper prices to recover.

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Benchmark copper on the LME was up 1.2% at $8,200 a tonne at 0955 GMT. Prices of the industrial metal used as a gauge of economic health earlier hit $8,088.50, the lowest since Nov. 30.

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“There is some short covering going on, but the demand picture is weak,” said Robert Montefusco, a broker at Sucden Financial, adding that base metals were reacting to macro factors such as US interest rates and the dollar.

The latest data to reinforce the weak outlook for base metals was China’s industrial output, which rose 5.6% in April from a year earlier, up from 3.9% in March, but below the consensus 10.9%.

Copper stocks in LME warehouses at 86,625 tons have risen 70% over the past four weeks to their highest since January.

The risk of a US debt default and safe-haven buying, and traders cutting bets on imminent cuts to US interest rates by the Federal Reserve, boosted the dollar.

A rising US currency makes dollar-priced metals more expensive for holders of other currencies, which would subdue demand.

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In the aluminum market, focus was on a large holding of LME warrants and a short position holding 20-29% of open interest – the number of outstanding contracts due to mature or be rolled over at settlement.

Expectations the short position may have to be squared has created a premium for buying aluminum tomorrow and selling it the day after – known as tom-next.

The premium jumped to $11.30 a tonne on Tuesday, the highest since April 14 and was last at $8.

Three-month aluminum was up 0.8% at $2,278.

In other metals, zinc gained 1.7% to $2,527, lead added 0.9% to $2,064, tin climbed 1.3% to $24,840 and nickel advanced 0.8% to $21,300.

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