Copper slips on weak China imports, EU worries

NEW YORK/LONDON Wed Jul 11, 2012 12:00am IST

A worker checks a shipment of copper inside the plant at the copper refinery of Codelco Ventanas in Ventanas city, about 164 km (101 miles) northwest of Santiago, April 16, 2012. REUTERS/Eliseo Fernandez

A worker checks a shipment of copper inside the plant at the copper refinery of Codelco Ventanas in Ventanas city, about 164 km (101 miles) northwest of Santiago, April 16, 2012.

Credit: Reuters/Eliseo Fernandez

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NEW YORK/LONDON (Reuters) - Copper dipped on Tuesday after a sharp fall in Chinese metal imports reflected a bleaker demand outlook and provided further evidence that Europe's three-year debt crisis is weighing on the global economy.

Reports of missing client funds from another U.S. futures brokerage and a new two-year low in the euro versus the dollar compounded the bearish mood in the base metals complex and kept copper trading volumes thin at the start of the week.

Copper's losses represented the fourth decline in five days as the market came off a peak largely spurred by a surprise deal by European leaders on June 29 to shore up banks and bring down borrowing costs of stricken members like Italy and Spain.

Three-month copper on the London Metal Exchange shed $70 to end at $7,490 a tonne after dealing between $7,482 and $7,585.

In New York, COMEX copper for September delivery fell 3.35 cents to settle at $3.3980 per lb, near the bottom of its $3.3890 to $3.44 session range.

COMEX copper volumes slowed to 41,000 lots in late New York business, lagging behind the 30-day average, according to preliminary Thomson Reuters data.

"There's been some responses by central bankers to deteriorating conditions (and) we've had some positive news flow out of Europe, but I wouldn't call this a strong market at all," said Deutsche bank analyst Dan Brebner.

"Growth is going to remain sluggish over the next couple of months with the possibility of further deterioration in the U.S. and China, and my expectation is this will continue to weigh on metals markets."

Reflecting this view, Raymond James cut its price targets on a host of Canadian base metals stocks and reduced its price forecasts for copper, saying a slowdown in China and the debt crisis in Europe will drag down demand.

In Europe, finance ministers agreed a deal overnight to release 30 billion euros ($36.9 billion) of bailout funds to help Spain's banks by end-July, but the euro failed to gain traction in response to the news, indicating investors remain wary about Europe. <FRX/>

Also weighing on copper, Tuesday's trade data showed China's imports of copper fell 17.5 percent to 346,223 tonnes in June from 419,741 tonnes the month before.

The broader Chinese trade data also raised concerns. Total imports were curtailed in June, stoking concerns about the strength of domestic demand in the world's second-biggest economy.

"Any time you have growth expectations moderate, not only is the demand growth slower but there's also the issue of inventory adjustments ... over-built inventory for the amount of demand expected," said Bart Melek, head commodity strategist with TD Bank Financial Group.

Markets were now awaiting China GDP data due later this week, with many pegging hopes that weak numbers will herald another round of monetary easing by central banks.

Recent comments from central bankers have raised hopes for stimulus. Three top U.S. Federal Reserve policymakers called for more quantitative easing.

RAYS OF HOPE

Since the beginning of May, copper has lost 10 percent due to fears about the European debt crisis and the global economy, but the market is virtually flat so far this year.

Recent data from the Commodity Futures Trading Commission (CFTC) showed speculators sharply cut their copper net shorts after prices rallied more than 5 percent in the week up to July 3, indicating more investors believe that copper prices have bottomed out.

Also, analysts and trade sources in China took the sting out of the poor import data earlier, saying signs have begun to emerge of a pick-up in copper demand there.

Macquarie Commodities Research analyst Bonnie Liu said she was seeing budding signs of improving demand in China, particularly among large copper fabricators that were receiving more orders for state grid construction.

"I think Chinese demand has bottomed out and has started to improve since May, led by government infrastructure spending. The price outlook is comfortable for the second half from recent lows seen in June," she said.

In aluminum, UBS cut its average LME three-month price forecast for 2012 to 98 cents a lb ($2,161 a tonne) from a previous forecast of 101 cents after producers failed to cut capacity as much as expected.

"Without these cuts, the aluminum price will most likely continue to slide," analyst Julien Garran said in a note, adding that the price was expected to average 95 cents a lb ($2,095/tonne) in the third quarter.

Aluminum ended down $13 at $1,912 a tonne.

Top aluminum maker Alcoa Inc's (AA.N) quarterly revenue and profit beat Wall Street's expectations, even though prices for its aluminum were at nearly two-year lows, and it forecast growing demand in the aerospace and auto sectors.

(Additional reporting by Maytaal Angel in London and Carrie Ho in Shanghai; editing by Marguerita Choy, Jane Baird and Keiron Henderson)

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