LME copper under pressure, fund interest wanes

LONDON, Feb 8 - Copper prices fell by nearly 3 percent on Thursday, with waning interest from funds overshadowing the market, but analysts believed demand for the metal in coming months would underpin prices.

"The markets are under pressure," a London Metal Exchange trader said.

Copper for delivery in three months traded down 3 percent to $5,260 before recovering to end the day at $5,415, down $10 on Wednesday's close.

Zinc dropped 6 percent at one point to touch $3,000 before also recovering to $3,127.50, down $62.50.

Copper prices have fallen 15 percent so far in 2007 and are down almost 40 percent from May's record $8,800-a-tonne high.

Traders said many of the funds had or were about to leave the base metals complex to return to their core activities such as equities, bonds and currencies.

"The game has changed completely...base metals are no longer the apple in the eye of the funds," the trader said.

Analyst Kevin Norrish at Barclays Capital said there had been very substantial selling recently on behalf of Commodity Trading Advisors (CTAs) with short positions at all-time highs.

"It is not as if they have left copper but they have aggressively shortened it," Norrish said.

Copper fell to 10-month lows of $5,250 last Friday after the Wall Street Journal reported that $1.5 billion hedge fund Red Kite had lost 20 percent of its value.

"The latest sell-off follows January's slump and it mainly appears to have been a kneejerk reaction to stories that a large hedge fund may have got into trouble," Standard Bank said.

In its monthly report the investment bank added that "weaker fundamentals had nothing to do with it".

The picture for copper was looking much improved, Standard Bank said, seeing significant potential in the demand side of the market in the coming months.

"The next move is likely to be consolidation at higher levels followed by a more significant recovery," Standard Bank said.

Stocks of copper in LME warehouses fell 25 tonnes to 215,725 tonnes on Thursday. They have doubled in the past 12 months and are about eight times higher than in July 2005.

ALUMINIUM

Aluminium ended the day up $33 at $2,690.

In the previous session some 8,000 call options at a strike price of $3,000 expired without being exercised.

The premium over cash metal or backwardation eased to $85/95 from $114/116 ahead of the option expiry.

Zinc prices have fallen by some 26 percent this year.

Barclays' Norrish said zinc had dropped mostly on the back of technical selling with sentiment influenced by a slowdown in the rate of inventories withdrawal and Chinese exports.

Nickel was down $450 at an indicated $35,450/35,500, lead rose to $1,574/1,575 against $1,560, and tin rose to $12,150/12,175 against its last quote on Wednesday of $11,800/11,900.

World tin consumption rose by some 9 percent, preliminary figures from tin organisation ITRI showed.