Copper extends losses, weighs on other metals

LONDON, Jan 12 - Copper fell (LME) on Friday, extending losses in 2007 to more than 9 percent on the London Metal Exchange and dampening sentiment in other metals as investors fretted about slower growth in China.

Three months copper closed 2.5 percent lower at $5,750 a tonne, versus $5,900 at Thursday's close.

In New York, copper for March delivery closed down 5.60 cents, or 2.1 percent, at $2.6030 a lb. on the New York Mercantile Exchange's COMEX division, near the bottom of its $2.5950-$2.6590 trading band.

Barclays Capital said the fall was partly in response to comments from Ma Kai, head of China's National Development and Reform Commission, that 10.5 percent economic growth in 2006 was too high. This raised concerns of signnificant tightening measures to come.

Trading in copper and other metals was erratic as commodities indexes bought and sold metals to re-weight their portfolios for 2007.

"Everything has been choppy this week but still none of the metals have broken out of the ranges," an LME floor trader said.

Most raw materials prices have dropped since the start of 2007, with oil down some 15 percent and gold over 5 percent.

"For much of the last three years commodities have been a one-way bet and that is now fragmenting," said ABN AMRO analyst Moore.

He said the supply side could explain recent developments.

Copper stocks in LME warehouses came in at 196,850 tonnes, more than twice their level at the start of 2006 and nearing 200,000 -- where the market was no longer deemed tight. [ID:nL05622328]

Deutsche Bank raised price forecasts for most base metals for this year and next year, but cut its prediction for copper in 2007 by 10 percent.[ID:nSP211167]

Nickel, which jumped almost 8 percent on Thursday on an outlook of strong demand and tight supply, lost $1,100 to close at $32,400 on Friday.

The premium for metal for nearby delivery over three-months futures -- known as backwardation -- was at around $2,200 per tonne, more than three times its level at the beginning of the year.

Aluminium closed at $2,705, down $40 from Thursday.

Its backwardation was around $75, reaching levels last seen in January 2001 as the market was squeezed. [ID:nL10156555]

A market in backwardation allows investors to make money by lending metal to the market by selling cash and simultaneously buying three-months contracts, pocketing the difference.

CHINA

China, which consumes about a fifth of the world's copper would remain the key driver for prices, analysts said, referring to a forecast pick-up in demand around the Lunar New Year in February.

"The big debate will not be if they come back...but by how much... what is the intensity of their buying," Moore said.

Restocking of metals was dependent on prices, analysts said.

"Consumers would only move to replenish their stocks at substantially lower prices," Robin Bhar at UBS said in a report.

Holdings of most consumers were lean, with the dominant trends being hand-to-mouth buying and purchasing on price dips, Bhar said. That highlighted the way prices remained historically high.

"As a consequence, the build in stocks is likely to be fairly modest," he said.

Tin was at $10,500 against its last quote on Thursday at $10,680/10,690 and lead was down $20 at $1,605/1,610.

Metals futures markets in New York will be closed on Monday for the Martin Luther King Jr. Day holiday.