Base metals slump in London

Profit taking following concerns for demand from China, inventory build and potential early talks at Chile's copper producer Codelco pulled London Metal Exchange copper prices sharply lower Wednesday, traders said.

Prices for three-month delivery fell to a one-week low of $7,110 a metric ton, down 4.2% on Tuesday PM kerb, but prices remain still broadly rangebound, UBS analyst Robin Bhar said.

"As long as copper doesn't break the $7,000/ton level we're still broadly rangebound," he said.

LME copper stocks continued their recent rise and were up 2,925 tons at 144,250 tons, which many market participants take as an indication for slower demand in the U.S. following a slew of sluggish economic data.

News of China's copper imports falling 22.4% in the first 10 months of 2006 also weighed, traders said, quashing expectations of pent-up demand.

Meantime, the possibility of early contract talks at Codelco's Norte division contributed to selling pressure.

Copper prices have been locked into a sideways trading pattern for weeks but have so far resisted attempts to push the contract through strong support at $7,000/ton.

Smaller contracts lead and zinc have taken center stage instead and have scored almost daily record highs on the back of a firm fundamental outlook, particularly for zinc.

Both metals, which are often mined together, moved to new record highs Wednesday, with lead rising to $1,755/ton and zinc hitting $4,540/ton, but pared gains in the afternoon.

LME lead stocks were down 725 tons at 46,325 tons and zinc stocks fell by 1,825 tons to 97,725 tons, boosting sentiment.

Zinc has added 6% over the past three days and could look to consolidate gains for a few sessions, a trader said.

A stronger dollar and lower spot gold prices precipitated the slide in base metal prices from the early afternoon, but while gold prices stabilized, base metals continued to fall further.

"The market was quite sluggish and there are a few disappointed longs on copper who wanted to get out," a trader said, while much activity in copper also focused position rolling among index funds.

Looking ahead, any surpluses in metals will likely be small, with any positive momentum in the global economy in 2007-08 tightening metal markets again, Goldman Sachs said in a report.

"Although economic growth outside the United States, particularly in China and Europe, appears to remain on firm footing, we continue to believe that a cyclical slowdown will ease demand growth sufficiently to allow a modest rebuild in inventories in the coming year, which we expect to reduce the scarcity premium currently embedded in base metals prices," Goldman said.

3 months metal (prices in dollars a ton)
Bid – Ask, Change from Tuesday PM kerb

Copper 7120.00-7125.00 Dn 299.00
Lead 1717.00-1718.00 Dn 22.00
Zinc 4420.00-4430.00 Dn 80.00
Aluminium 2717.00-2718.00 Dn 74.00
Nickel 30050.00-30055.00 Dn 1150.00
Tin 9800.00-9850.00 Dn 325.00