Copper falls on China demand concerns

[] — Copper prices fell in London on Monday, paring last week’s 1.8% rise and Shanghai also dipped, tracking losses in equity markets and pressured by fresh worries about near-term Chinese demand for industrial raw materials.

Three-month copper on the London Metal Exchange fell $78 to $9 607 a tonne by in early morning trade. The market is heading for a flat end to the quarter, having plumbed a three-month low of $8 944.50 in the week following the March 11 earthquake and tsunami in Japan.

Shanghai’s most-active copper futures contract, June, lost 1.40% or 1 010 yuan to 71 350 yuan a tonne.

Confidence expressed in the Chinese media that the nation would cap inflation below the full-year target of 4% worried some investors.

The threat of Chinese tightening has been a drag on markets on the risk that rising interest rates and tighter lending would sap demand for raw materials.

But the front page editorial in the People’s Daily cited a number of factors as favorable to slowing the upward momentum of consumer prices, including an oversupply of industrial products, abundant grain stocks and large foreign currency reserves.

“It’s the oversupply of industrial goods that worries me. Taken with the big discount for Shanghai copper to London, it’s a bit of a concern. It raises the risk that China will steer clear of the international market for longer than expected,” said a trader in Hong Kong.

“If they put off restocking until later in the third quarter or even into the fourth it will have profound implications for the extent of the supply-demand deficit.”

Analysts expect world copper demand to beat output by anywhere between 400 000 tonnes and up to almost 1 million.

The price gap between London and Shanghai widened, with London copper trading some 2 300 yuan above the Chinese market, accounting for Chinese VAT.

Also weighing on sentiment, Japan’s Nikkei share index fell more than 1%, as workers continued to battle to stem radiation leaks at the crippled Fukushima nuclear plant.

Shares elsewhere in Asia were mainly weaker, with MSCI’s index of Asian shares outside Japan easing 0.5%.

Markets saw some support from Friday’s stronger-than-expected economic growth in the fourth quarter in the United States, while hawkish comments from some US Federal Reserve officials that the Fed was unlikely to extend its bond purchase programme kept the market capped.

With the end of the month and with it, the first quarter drawing near, traders said there was some risk of volatility, though small, given that base metals were mostly steady to firm since the start of the year.

“I doubt we’ll see much of an attempt to bid up the market for the end of the quarter. Investors will be happy, given the shocks that we have endured, with prices around these levels,” a trader in Singapore said.

“The bigger risk is Friday and the start of the new month, when we also get a lot of macro data.”

Friday’s data crop includes China, India and South Korea purchasing manager indexes and whether the softening in input prices in the past month and Japan’s earthquake have fed through into activity.

Friday is also a red letter day in the United States with supply management and non-farm payrolls, expectations for which are likely to set the tone for this week.

Aluminium fell $11 to $2 630.

“The underlying aluminum trend is strong. A breakout above $2 630 has upside target near $2 740,” said Daryl Guppy, of

He said the test of below the $2 630 area would find further support at $2 520.

“The trend is stable but includes sharp rally and retreat behavior.”