Copper extends losses but demand seen stirring

LONDON, Jan 9 - Copper prices extended losses slightly on Tuesday on worries about demand growth and rising stocks, but consumer buying provided support, analysts said.

"Copper and aluminium have stabilised amidst tentative signs of a pick-up in consumer buying, notably out of China," a Barclays Commodity report said.

"Nevertheless, market sentiment has stayed extremely weak...with commodity index re-weighting...being viewed as another reason to liquidate market length, which in turn is encouraging systems traders to add to shorts," the report said.

Support was seen at $5,000 a tonne, so prices were seen lower after shedding over 12 percent since the start of 2007.

Three months copper futures were at $5,569/5,570 a tonne in the open outcry trading session, against $5,606 at the close on Monday.

On Tuesday copper stocks came in lower, down by 2,300 tonnes to 193,475, but still near their highest since March 2004. ADVERTISEMENT
 
 

In the short term volatile trading would continue, but buyers would become increasingly confident, analyst William Adams at BaseMetals.com said in a report.

"With the re-indexing still in the foreground, confidence may not be strong enough to encourage consumers back in force yet," Adams said.

The recent fall in copper weighed on the other metals but aluminium held steady.

Aluminium was at $2,630 after closing at $2,618, when the metal bucked the falling trend by gaining $8 since Friday.

The metal found support from a reshuffle by the second-largest commodity fund, with some $30 billion in assets.

"Aluminium appears to be a beneficiary of re-weightings as some funds look to boost their exposure to one of the LME's least successful metals in 2006," Deutsche Bank said in a note.

The Dow Jones AIG index is adjusting this year's holdings and while this supported aluminium, the weakest performer in 2006, it put pressure on zinc and nickel. [ID:nL02923885]

There was talk in the market that the AIG had agreed to sell its nickel contracts, amounting to around 10 percent of total open interest, to someone outside the open market.

Nickel was up at $31,450/31,500 against $31,400.

Zinc extended its losses, down by 2.4 percent to $3,630.5/3,651 versus $3,720 on Monday. The metal has fallen by some 13 percent since the beginning of the year.

Zinc also lost momentum because of a further rise in LME stocks, up by 3,100 tonnes to 94,075.

A close below $3,750 would make the chart picture look weaker, analyst Edward Meir at Man Financial said in a note, and might set off an eventual decline to $3,200.

ALUMINIUM MARKET TIGHT Aluminium was also supported by a big increase in cancelled warrants and a large long position for January-March. Reflecting tightness in the market, aluminium's cash to three months backwardation was at $55/60, its highest since October 2004.

"A price fall that is accompanied with a steepening in the backwardation...it is a bit unusual -- you would expect the curve to get flatter rather than steeper," analyst Michael Widmer at Calyon said.

The price has eased by 8 percent since the start of 2007.

LME inventories came in at 698,075 tonnes, up by 4,125 and equalling some eight days of global consumption.

"It has to do with technicals...there is no shortage of aluminium, so why do we have a backwardation?" an LME trader said.

Tin fell to $10,110 versus its last quote on Monday of $10,350/10,400 and lead was at $1,550 against $1,560.