Copper drops as caution prevails; China imports fall

 

 

Investors largely shrugged off data showing copper imports by top consumer China fell 18.7 percent in January, with many factories shut during the week-long Lunar New Year holiday.

 

 

The drop was largely within market expectations although some analysts thought the import volume, at more than 400,000 tonnes, suggested Chinese demand remains strong.

 

 

Three-month copper on the London Metal Exchange dropped 0.9 percent to $8,682.25 a tonne by 0708 GMT, after peaking at $8,765 on Thursday, its loftiest since Sept. 16.

 

 

Copper is still up 1.4 percent for the week, heading for its fifth straight week of gains, thanks to Thursday's surge courtesy of the Greek deal.

 

 

The most-traded May copper contract on the Shanghai Futures Exchange closed up 0.3 percent at 61,560 yuan a tonne, chasing LME's gains in the previous session.

 

 

Greek political leaders said they had clinched a deal on economic reforms needed to secure a second EU bailout, but euro zone finance ministers demanded more steps and a parliamentary seal of approval before providing the aid.

 

 

Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying the Greek parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions needed to be identified by next Wednesday, after which euro zone finance ministers would meet again.

 

 

"There's still a bit of uncertainty surrounding that Greek deal. The general tone is supportive, but there are still some hurdles to overcome," said Stefan Graber, analyst at Credit Suisse.

 

 

"The latest rally looks like it could run out of steam in the very near term, but generally the economic backdrop looks friendlier now compared to only a few months ago."

 

 

A mending U.S. job market has also been lending support to copper prices, with the number of Americans signing up for unemployment benefits falling unexpectedly last week.

 

 

FAIRLY STRONG

 

 

China's imports of unwrought copper and semi-finished copper products fell to 413,964 tonnes in January after a record 508,942 tonnes in December, customs data showed.

 

 

"A fall was on the cards, this was slightly less than I had expected given the base effect from the accelerated unloadings in December and the Lunar New Year in January," said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank.

 

 

"It's quite a positive number and I suspect we will see imports at or above this number in February."

 

 

Other analysts agree the January import number was fairly strong.

 

 

"If you strip out the Lunar New Year holiday and look at it from a weekly basis, average weekly imports in January were still up nearly 9 percent compared to December," said Judy Zhu, analyst at Standard Chartered in Shanghai.

 

 

With LME prices outpacing gains in Shanghai and China's copper stockpiles rising, traders said there may be no strong need for the Chinese to step up imports.

 

 

But Graber at Credit Suisse said a relatively robust Chinese economy should help support copper to trade around $8,500 over the next three months.

 

 

"Our outlook for the year is still constructive and we look for prices to reach $9,200 in 12 months," he said.

 

 

In other news, the CME Group cut trading margins for copper by 13 percent to $6,750 per contract, and also slashed margins for other products including crude oil, Brent, gold, silver and platinum.