Demand worries drag down LME copper

LONDON, Jan 4 - Copper futures were battered in pre-market trading on the London Metal Exchange on Thursday, falling more than 3 percent on worries about slowing demand for the industrial metal.

The three-months contract traded as low as $5,660 per tonne on electronic platform Select, its lowest since last April, and was quoted at $5,690/5,710 at 1053 GMT.

Signs that the U.S. economy may be slowing are having a knock-on effect on China, which buys a huge amount of metal to make goods for sale to the U.S. and other Western economies, a London-based fund source said.

"People are going to start thinking 'How much does China want to spend on copper wire if their export markets are drying up?'," he said.

At $5,700, copper is around 35 percent below its peak of May 2006 and 10 percent down since the start of this year, but still more than double its price of three years ago.

"People may be slightly starting to get cold feet after a 300 percent rise," the fund source said.       
"Maybe some people are thinking it might be time to sell base metals and go away."

Stocks in LME-registered warehouses, often used as a gauge of demand, rose by over 10,000 tonnes in the first three working days of January, and at 193,175 are more than twice their level at the start of last year.

LME traders were expecting bargain-hunting after the recent falls, but this has not happened yet. "I've been waiting for it to bounce back up, but when is it going to come?" a dealer said.

"The RSI (relative strength index) is terribly oversold. Normally everyone would buy here."

Copper dragged other base metals down.

Aluminium was $34 lower at $2,706/2,711 and nickel was down $275 at $32,950/33,050.

Zinc was quoted at $4,020/4,040 from an indicated $4,149/4,150 at the close, lead was down $65 at $1,655/1,665 and tin was off $150 at $10,700/10,750.

Mining stocks BHP Billiton and Rio Tinto were down 4.6 and 3.6 percent respectively by mid-morning in London, sharply lower than the FTSE 100 index .