“Everywhere we look in this region, we see growth,” Martin Abbott, chief executive officer of the LME, said in an interview on Bloomberg Television in Singapore today. “All of the numbers are so impressive,” Abbott said.

Asian nations including China are leading the global economy out of recession, boosting demand for metals such as copper, nickel and tin. The LME has announced talks with Singapore Exchange Ltd. on cooperation, and plans more metal warehouses in the world’s fastest growing region.

“We are recognizing that the growth in Asia is not cyclical, it is structural, and more and more of the business that we transact is going to be derived in this region,” Abbott said. “This is not simply a China story.”

Three-month copper futures have advanced for seven of the past eight years driven by rising Asian demand, and the contract has climbed 37 percent in the past 12 months to $6,664.75 a metric ton today. The LMEX Index of six industrial metals has gained 30 percent over the past year.

‘We See Growth’

“When you look at what’s happening throughout Asia, I think we’re looking at a long-term story of infrastructure build, industrial build and GDP growth,” Abbott said, citing expansions in Indonesia, Vietnam and Malaysia.

Abbott’s view echoes that of commodity bulls such as Singapore-based investor Jim Rogers, who has said that economic growth in Asia is powering demand. Rogers said earlier this week that “you should own commodities because that’s your only refuge,” backing silver and farm goods such as rice.

The International Monetary Fund yesterday raised its forecast for global growth to 4.6 percent this year, reflecting a stronger-than-expected first half. The lender increased the 2010 growth forecasts for China to 10.5 percent and for India to 9.4 percent for the year to March.

China’s economy expanded 9.1 percent last year, boosted by an unprecedented 9.59 trillion yuan ($1.4 trillion) of credit extended by banks in 2009 and a 4 trillion yuan, two-year fiscal stimulus plan. The nation is the world’s largest metals user.

Indonesia, Southeast Asia’s largest economy, may accelerate to 5.9 percent growth this year, Finance Minister Agus Martowardojo said yesterday.

Singapore Talks

The London-based metal exchange, founded in 1877, has begun talks with Singapore Exchange Ltd., operator of the local derivatives and securities exchange, on possible cooperation, according to a statement yesterday. The LME opened its first overseas office in the Southeast Asian city-state this year.

“The crisis has been a huge opportunity for the LME,” Abbott said yesterday to mark the exchange’s new Singapore office, referring to the global credit crisis. “We have actually seen more business coming onto the exchange because of the crisis, because companies are even more aware of the need for counterparty risk management.”

Abbott, who became chief executive of the LME in 2006, has overseen the introduction of cobalt and molybdenum futures. Trading volumes last year were the second highest on record after 2008, with a notional value of $7.4 trillion.

“We are agnostic about price,” Abbott said today. “We are not agnostic to cyclical and structural trends,” such as the industrialization of Asia, he said.

Consumer spending in the U.S. rose in May more than forecast, a sign households are gaining confidence in the recovery and the job market. Purchases rose 0.2 percent after little change the prior month, Commerce Department figures showed today. Incomes climbed 0.4 and the savings rate increased to the highest level in eight months. Copper has dropped 7.5 percent this year.

“The numbers suggests that the U.S. economic recovery remains on track, though the pace of the recovery is probably a bit slow for most people’s liking,” David Thurtell, a Citigroup Inc. analyst in London, said by telephone.

Copper for delivery in three months jumped $36, or 0.5 percent, to $6,806 a metric ton at 1:49 p.m. on the London Metal Exchange. Prices rose to a four-week high of $6,875 on June 25 and reached $6,873 earlier today.

LME copper rose as much as 2.7 percent on June 25, supported by U.S. consumer confidence rising in June to the highest level since January 2008. Prices gained 5.2 percent last week, the most since the week ending Feb. 19, partly on speculation imports by China might increase after the People’s Bank of China indicated on June 19 it would abandon the yuan’s two-year peg to the dollar.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid 0.5 percent last week, making dollar- priced metals cheaper in terms of other monies. The index gained as much as 0.3 percent today.

Sovereign-Debt Crisis

Copper has dropped this year as the dollar gained and investors speculated that monetary tightening in China and the European sovereign-debt crisis may curb demand.

Group of 20 leaders responded to the European debt crisis with deficit-reduction targets and agreed to pursue higher capital requirements for banks once economic recoveries take hold.

Stockpiles of copper tracked by the LME fell for a seventh day to 453,175 tons, the lowest level since Dec. 7. Bookings to remove metal from warehouses jumped for a third day to 31,900 tons, the highest since March 3. Copper stockpiles monitored by the Shanghai Futures Exchange declined 8.8 percent last week to 123,939 tons, the bourse said on June 25.

Aluminum for three-month delivery on the LME rose 1 percent to $2,016 a ton. Stockpiles in LME-monitored warehouses dropped for a third consecutive day, down to 4.44 million tons and the lowest since July 13, 2009.

Aluminum producers in Henan province, the largest maker of the metal in China, agreed to curtail 700,000 tons of capacity, Wen Xianjun, the deputy head of China Nonferrous Metals Industry Association, said today by phone from Beijing.

Nickel gained 2.4 percent to $20,226 a ton. Zinc fell 0.3 percent to $1,866.75 a ton, lead advanced 1.4 percent to $1,840 a ton and tin was unchanged at $18,125 a ton.

“I think we are still seeing some residual demand from last week,” said Catherine Virga, senior base metals analyst with CPM Group in New York.

“We are pulling up from that correction. We are seeing an uptick in physical demand across the metals due to the lower prices.”

On the London Metal Exchange (LME), aluminum peaked at $2,138 a tonne, its highest level since Feb. 3, and nickel soared to a seven-month high of $20,345 a tonne.

Copper for three-month delivery in London MCU3 closed at $7,144 a tonne, up from $6,870 at the close on Monday. The metal used in power and construction hit a session high of $7,138 a tonne, the highest since Jan. 28.

On the New York Mercantile Exchange’s COMEX division, benchmark copper for March delivery HGH0 rallied 13.9 cents, or 4.5 percent, to finish at $3.2215 per lb, its highest level on a closing basis since Jan. 27.

The euro had its biggest one-day gain versus the dollar since the end of November, as traders bet the single currency had slipped too far over fiscal worries about Greece. [FRX/]

A weaker U.S. currency makes dollar-priced commodities cheaper for holders of other currencies.

Regional manufacturing data from the United States brightened the economic outlook and bolstered the bullish momentum in the metals, analysts said. [ID:nN16372747]

Demand growth for commodities has, for some years now, been led by emerging economies such as China, the world’s largest consumer of industrial metals, which is expected to grow by more than 11 percent in the first quarter. [ID:nTOE6130AF]

Chinese markets are due to reopen next week after this week’s New Year break.

“The demand picture out of China is still robust,” said Daniel Smith, an analyst at Standard Chartered.

“Once China comes back from the New Year holidays things will pick up and this rebound is an anticipation of that.”

CONCENTRATION

Stocks of copper in LME warehouses stand at 549,900 tonnes, their highest since October 2003. That is a negative, but the market is looking at canceled warrants — material already earmarked for delivery.

Copper canceled warrants at above 16,000 tonnes from 3,625 tonnes on Feb. 8 are mostly concentrated in Korea, and analysts say this material is probably heading for China.

Canceled warrants on aluminum are at 295,175 tonnes versus 256,550 on Feb. 8, a small number compared to stocks near record highs at above 4.587 million tonnes.

But in the context of financing deals, which have tied up much of aluminum stocks, they are significant, analysts said.

Aluminum MAL3, used in transport and packaging, closed at $2,131 a tonne from Monday’s close of $2,054, while stainless steel material nickel MNI3 closed at $20,325 from $19,350.

Stocks of nickel fell to 164,856 tonnes on Feb. 15 from 166,356 on Feb. 10. Nickel prices over the same period are up about 10 percent.

Material tagged for delivery nearly doubled to 5,460 tonnes on Feb. 15, from 2,394 on Feb 8. Most of the new canceled nickel warrants were in Singapore.

Battery material lead closed at $2,298 a tonne from Monday’s last bid at $2,180, jumping nearly 6 percent to hit an intraday high of $2,308.75, its highest in nearly a month.

Zinc MZN3 was at $2,337 from $2,200 on Monday, and rose over 6 percent to hit a late-session high of $2,346. Tin MSN3 was last quoted at $16,700/16,725 from $16,495. Metal Prices at 1953 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 322.10 13.85 +4.49 334.65 -3.75 LME Alum 2137.00 83.00 +4.04 2230.00 -4.17 LME Cu 7145.00 275.00 +4.00 7375.00 -3.12 LME Lead 2285.25 152.25 +7.14 2432.00 -6.03 LME Nickel 20270.00 920.00 +4.75 18525.00 9.42 LME Tin 16700.00 205.00 +1.24 16950.00 -1.47 LME Zinc 2327.00 127.00 +5.77 2560.00 -9.10 SHFE Alu 16825.00 185.00 +1.11 17160.00 -1.95 SHFE Cu* 56410.00 1020.00 +1.84 59900.00 -5.83 SHFE Zin 18345.00 270.00 +1.49 21195.00 -13.45 * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

PRICES
* Three-month copper MCU3 on the London Metal Exchange was
trading at $6,891.25 a tonne at 0812 GMT compared with $6,940 at
the close on Thursday.
* Aluminium MAL3 was flat at $2,065 a tonne.

DATA/EVENTS
* U.S. Commerce Dept releases Jan retail sales, 1330 GMT.
* Reuters/University of Michigan Surveys of Consumers
releases preliminary U.S. Feb consumer sentiment index, 1455 GMT.
* U.S. Commerce Dept issues December business inventories,
due at 1500 GMT.
* U.S. Economic Cycle Research Institute (ECRI) releases
weekly index of economic activity for week to Feb 5 at 1530 GMT.
* Euro zone flash GDP estimates, 1000 GMT.
* Euro zone industrial production data, 1000 GMT.
[ECI/US] [ECI/EURO] [ECI/GB]
[M/DIARY] [MTL/DIARY]

MARKET NEWS
* The dollar strengthened against the euro as the single
currency softened across the board, weighed by disappointment
among investors over lack of detail from the European Union on
helping debt-laden Greece. [FRX/]
* Oil eased to just above $75 a barrel, pressured by a
firmer U.S. dollar as investors awaited further details of the
European Union plan to help Greece. [O/R]
* Asian shares rose on Friday as investors took comfort from
the EU’s pledge to support Greece. European shares also opened
higher, extending a winning run to a fifth session on Friday.
[MKTS/GLOB]

FUNDAMENTALS
* Deliverable copper inventories in warehouses monitored by
the Shanghai Futures Exchange rose 3 percent from one week
earlier, while deliverable aluminium inventories rose 1 percent,
the exchange said on Friday. [ID:nBJD003497]
* China said its aluminium industry faces severe
overcapacity, with the total smelting capacity at about 20
million tonnes, exceeding demand by 7 million tonnes.
[ID:nTOE61A074]
* China’s top steel firm, Baosteel (600019.SS: Quote), hiked March
prices of hot- and cold-rolled steel coil by 300 yuan ($43.91) a
tonne bringing them to the highest levels since November 2008,
two industry sources said on Friday. [ID:nTOE61B01S]
* Tajikistan, Central Asia’s largest aluminium producer, cut
its output of the metal by 4.1 percent year-on-year to 30,158
tonnes in January, a source at state-owned aluminium company
TALCO said on Friday. [ID:nLDE61B05L]
* Kazakh copper miner Kazakhmys (KAZ.L: Quote) said its Boschekul
copper facility, set for 2014 launch, would produce about
100,000 tonnes of copper concentrate a year. [ID:nLDE61B04R]
* Belgian specialty metals and materials group Umicore
(UMI.BR: Quote) is interested in acquiring the catalyst unit of
Germany’s Sued-Chemie (SUCG.DE: Quote), Belgian business daily De Tijd
said on Friday. [ID:nLDE61B03C]

TECHNICALS
* Copper support at $6,800, resistance at $7,055, 14-day RSI
at 55.0.
* Aluminium support at $2,020, resistance at $2,095, 14-day
RSI at 42.5.
For related news and prices, click on the codes in brackets:
LME price overview RING= LME aluminium <0#MAL:>
LME copper <0#MCU:> Asia physicals <BASE/ASIA1>
COMEX copper futures <0#HG:> Europe physicals <BASE/EU>
Scrap metal prices BASEU3 LME plastics <LME/PLASTICS>
RELATED NEWS AND OTHER TOPICS
Base/minor metals news [MET] All metals news [MTL]
Metals summary [GLANCE/MTL] Scrap metals news [SCRAP/EUR]
Index of summaries [GLANCE/] All commodities news [C]
Metals diary [MTL/DIARY] Weather news [WEA]
Foreign exchange rates FX=S
SPEED GUIDES
COMMODS METAL1 <BASE/FUT1> <BASE/CASH1> <BASE/OPT1>
<LME/OPT1> <LME/FUT1> <LME/BROKER1> <LME/INFO1> REUTERS
For Reuters Metals Production Database click on URL below
mpd.session.rservices.co

Benchmark copper for March delivery on the New York Mercantile Exchange’s Comex division plunged 11.60 cents, or 3.75 per cent, to finish at $2.9735 a pound, its lowest level on a settlement basis since Nov. 12.

Over at the London Metal Exchange, copper for three-month delivery closed down $230 at $6,590 a tonne, after dealing in a wide range between $6,948 and $6,545, another low dating back to the middle of November.

“It’s primarily dollar-related,” Michael Gross, futures analyst with Optionsellers.com in Tampa, Fla., said of the selloff.

“The sharp [dollar] upswing shows there are additional concerns about credit problems overseas in Europe.”

The dollar rose broadly after the European Commission backed a Greek deficit-cutting plan as expected and worries mounted over the fiscal health of Portugal.

A firm U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

On the economic front, the pace of U.S. private sector job losses slowed in January, while modest growth was seen in the U.S. services sector.

This data followed more upbeat data that included Tuesday’s home sales numbers, Monday’s manufacturing figures and economic growth data on Friday.

“It’s [economic data] been a see-saw … fits and starts,” Mr. Gross said. “It’s going to be more of a daily thing, whereas copper is reacting now to more of the bigger macroeconomic factors.”

Copper was hit in late January by investors’ fears that signs of monetary tightening in China could choke demand from the world’s top consumer of industrial metals.

“China’s macro environment has changed from one predominantly focused on growth to one where balancing growth and inflation has become increasingly important to policy makers,” Barclays Capital said in a note.

“Given China’s importance to key commodity markets, these moves have had a noticeable impact on sentiment.”

LME copper stocks fell 675 tonnes to 540,475 tonnes. At the end of last week, copper inventories rose to about 543,500 tonnes to hit their highest level since last February.

Stocks of aluminum, (AL-FT) used in transport and packaging, dropped 6,600 tonnes, but held near a record high above 4.6 million tonnes.

A large portion of those aluminum stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.

Aluminum ended at $2,083 from $2,120. Analysts said improving U.S. auto sales was boosting sentiment.

“Over all, an annualized figure of 10.80 million units represents a solid figure especially given the state of the economy,” Standard Bank said in a note.

“It will take time for sales to recover back to pre-crisis levels, however the steady increase in sales is another positive sign that should continue to underpin … industrial metal prices.”

Zinc closed at $2,095 from $2,160, while battery material lead ended at $2,020 from $2,118 but earlier slipped 5 per cent at $2,010.25 to track other metals lower.

Tin closed at $16,600 from $16,450 and steel-making component nickel was last bid at $18,195 from $18,300.

(Updates prices)
By Michael Taylor and Rebekah Curtis
LONDON, Feb 1 (Reuters) – Copper rose on Monday, bouncing
from an 11-week low after strong manufacturing data from the
United States boosted the outlook for demand in the world’s
second-largest consumer of the metal.
Copper for three-month delivery MCU3 on the London Metal
Exchange closed at $6,791 a tonne from $6,745 on Friday.
Boosting the economic outlook, the U.S. manufacturing sector
grew in January at a faster rate than expected, with the index
reading at its highest since August 2004. [ID:nN01363414]
“Sentiment has improved,” said Eugen Weinberg, commodities
analyst at Commerzbank. “The U.S. ISM data means manufacturing
is picking up and implies the second largest client on the
metals market will be asking for more industrial metals.”
But Weinberg added that economic recovery will be slow — a
‘V’-shaped recovery with “a small ‘v’.”
The metal used in power and construction earlier fell to
$6,600, its lowest since Nov. 16, as strong economic data from
China stoked concerns that potential monetary tightening in the
world’s top metals consumer could dampen demand.
China’s economy made a strong start to the year, according
to two business surveys that also underlined the mounting
challenge policymakers face to curb inflation. [ID:nTOE61003S]
“China’s definitely going to tighten the amount of bank
lending across the economy, which will slow down growth,” said
Charles Kernot, an analyst at Evolution Securities.
“But they need to make sure that there is still some growth
coming through,” he added.
Highlighting strong Chinese growth, an index based on an
official survey of purchasing managers last month remained
firmly in expansionary territory, while an index derived from a
companion poll by HSBC scaled an all-time high.
“If interest rates start going up it’s better to have the
cash rather than the copper,” Kernot said. “People want to
liquidate as much as of their inventories as they can and use
the cash to pay off debt.”
Tin CMSN3 earlier fell 7 percent to the lowest since Dec.
24, 2009, chasing a broad sell-off in metals last week, and was
on track for its biggest one-day fall since early July 2009.
Other U.S. data showed construction spending fell more
steeply than expected in December. [ID:nN29161976]
STOCKS RISE
Copper fell 8.5 percent in January, as rising inventories at
LME inventories indicated demand outside China remained weak.
Stocks last rose 2,475 tonnes to 543,525 — their highest since
late February 2009.
The metal rose 140 percent in 2009 on robust Chinese demand.
Aluminium MAL3 closed at $2,085 versus $2,080 on Friday.
LME stocks of the metal used in transport and packaging fell 625
tonnes, but stayed near record levels above 4.6 million tonnes.
For an interview with the world’s largest aluminium producer
UC RUSAL, click on: [ID:nLDE61008Z]
Nickel MNI3 was at $18,000 from $18,500.
Anglo-Swiss miner Xstrata Plc (XTA.L) said it reached a
tentative deal with union workers at its nickel mining
operations in Sudbury, Canada, averting a strike.[ID:nN01179992]
Battery material lead MPB3 was last quoted at $2,045/2,047
from $2,020. Lead earlier touched a low of $1,960, a level not
seen since August.
Recent rises in cancelled warrants — material earmarked for
delivery — have given investors some signs demand may improve.
On Friday, cancelled warrants for lead rose to 15,850
tonnes, versus 11,700 on Jan. 28 and 75 tonnes on Dec. 17. LME
lead stocks rose 200 tonnes to hit 157,500 tonnes, the highest
since September 2003.
Zinc MZN3 was at $2,145 a tonne from $2,110 and tin MSN3
was at $16,150 from $17,200.
Zinc earlier hit a three-and-a-half month low at $2,074.
Analysts expect Chinese buying to remain subdued ahead of
its lunar new year holiday in mid-February. <CN/HOLIDAY>
For Barclays’ view on copper demand, see: [ID:nWEA8151]

Metal Prices at 1711 GMT
Metal Last Change Pct Move End 2009 Ytd Pct
move
COMEX Cu 307.35 2.75 +0.90 332.75 -7.63
LME Alum 2080.00 0.00 +0.00 2230.00 -6.73
LME Cu 6790.00 44.50 +0.66 7375.00 -7.93
LME Lead 2045.00 25.00 +1.24 2432.00 -15.91
LME Nickel 17950.00 -550.00 -2.97 18525.00 -3.10
LME Tin 16050.00 -1150.00 -6.69 16950.00 -5.31
LME Zinc 2145.00 35.00 +1.66 2560.00 -16.21
SHFE Alu 16190.00 150.00 +0.94 17160.00 -5.65
SHFE Cu* 54380.00 -1050.00 -1.89 59900.00 -9.22
SHFE Zin 17240.00 -155.00 -0.89 21195.00 -18.66
** 1st contract month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07.

* Many metal stocks rising, locked into finance deals * Sudbury nickel mine talks watched

(Recasts, adds comments/details, changes dateline pvs SINGAPORE) By Michael Taylor

LONDON, Feb 1 (Reuters) – Copper fell to a two-and-a-half month low on Monday, as strong economic data heightened investor concerns that China, the world’s top metals consumer, may further tighten monetary policy. By 1051 GMT, copper for three month delivery on the London Metal Exchange fell to $6,680 a tonne from $6,745 at the curb on Friday, according to the LME. It earlier touched a session low at $6,600, a level not seen since Nov. 16 and was on track for a fifth day of declines, its longest losing streak since August 2009.

Tin prices fell more than 6 percent to its lowest since Dec 24 2009, chasing a broad sell-off in metals last week, and was set for its biggest one-day fall since early July 2009. “It’s just a change in sentiment really,” said Alex Heath, head of base metals and RBC Capital Markets. “I don’t think anybody was under any misapprehension that metals had got ahead of themselves in terms of actual demand and growth … Trees do not grow to heaven.

“You can’t have this amount of money flooding around the system without (China) having some kind of tweaking processes going on,” he added. “You are still going to have huge growth this year … it’s healthy.” China’s economy made a strong start to the year, according to a pair of business surveys released on Monday that also underlined the mounting challenge policymakers face to curb inflation.

An index based on an official survey of purchasing managers last month eased from a 20-month high in December but remained firmly in expansionary territory, while an index derived from a companion poll by HSBC scaled an all-time high. That comes on the heels of 5.7 percent expansion in the U.S. economy in the fourth quarter, the quickest pace in more than six years, the Commerce Department said.

But some analysts say Chinese concerns are overblown. “With the risks in China still tilted towards inflation and stronger-than-expected growth, despite the shift towards less accommodative policy, the problem in China remains too much demand not too little,” Goldman Sachs said in a note.

“Given that we have already assumed slowing metals demand growth for China in 2010, this suggests that the risks to Chinese metals demand and our forecasts are likely skewed to the upside rather than to the downside in coming months.” Copper fell 8.5 percent last month, in part due to rises in LME inventories, which indicate that demand outside China remains weak. Copper prices rose 140 percent last year.

The latest data showed stocks rose 2,475 tonnes to total 543,525 — their highest since late February 2009. Among other base metals, aluminium traded at two-month lows at $2,068 versus $2,080 at the curb on Friday. LME stocks in the metal, used in transport and packaging, fell 625 tonnes but remained near record levels above 4.6 million tonnes.

Steel making ingredient nickel traded at $18,375 from $18,500 at the curb on Friday, while battery material lead was at $2,004.50 from $2,020. Lead earlier touched a low of $1,960, a level not seen since August. Recent rises in cancelled warrants — material earmarked for delivery — are under close scrutiny from metals investors for signs of improving demand.

On Friday, cancelled warrants for lead were 15,850 tonnes, compared with 11,700 on Jan. 28 and 75 tonnes on Dec 17. LME lead stocks rose 200 tonnes to hit 157,500 tonnes, a level not seen since September 2003. Contract talks between Xstrata and workers at its main nickel operations in Sudbury, Ontario were also being watched by many traders.

Zinc traded at $2,090.25 a tonne from $2,110 at the curb on Friday, and tin was at $16,300 from $17,200. Zinc earlier hit a three and a half month low at $2,074. RBC’s Heath said because tin is not traded as much by funds compared to other LME metals, it tends to be more volatile.

“It doesn’t take too much to do that in tin,” he added.

Metal Prices at 1059 GMT Metal Last Change Percent Move End 2009 Ytd Percent move COMEX Cu 303.05 -1.55 -0.51 332.75 -8.93 LME Alum 2062.00 -18.00 -0.87 2230.00 -7.53 LME Cu 6668.00 -77.50 -1.15 7375.00 -9.59 LME Lead 1995.00 -25.00 -1.24 2432.00 -17.97 LME Nickel 18200.00 -300.00 -1.62 18525.00 -1.75 LME Tin 16250.00 -950.00 -5.52 16950.00 -4.13 LME Zinc 2083.00 -27.00 -1.28 2560.00 -18.63 SHFE Alu 16190.00 150.00 +0.94 17160.00 -5.65 SHFE Cu* 54380.00 -1050.00 -1.89 59900.00 -9.22 SHFE Zin 17240.00 -155.00 -0.89 21195.00 -18.66 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07.

An advisor to the People’s Bank of China also noted on Monday that inflation and asset bubbles were the biggest worries for the Chinese economy.

“China was growing unsustainably and they are clearly worried about inflation, so they will be tightening further,” said Citigroup analyst David Thurtell.

Analysts say moves to limit liquidity could curb inflows into commodities from China, a key driver of industrial metals demand last year.

PRICES

* Three-month copper on the London Metal Exchange was trading at $6 680 (R50 701) a tonne at 10:05 SA time compared with $6 750 at the close on Friday.

* Aluminium was at $2 076 a tonne from $2 080.

DATA/EVENTS

* White House Office of Management and Budget releases its fiscal 2011 budget proposal, 5pm SA time.

* US December personal income/spending, due 3:30pm SA time.

* US December construction spending, 3pm SA time.

* US Institute for Supply Management releases its January manufacturing index, 3pm SA time.

* Euro zone, German January manufacturing PMI, due 10:58 SA time.

MARKET NEWS

* The euro recovered early losses versus the dollar in European trade on Monday after earlier huddling near seven-month lows on fiscal concerns. Higher-yielding currencies remained pressured by the closing of leveraged trades.

* Oil prices steadied on Monday after earlier extending the worst loss in 13 months in January on concerns about global growth and sluggish oil demand. Fresh economic data out of China heightened concerns Beijing would tighten monetary policy.

* Asian stocks slid after suffering their worst monthly drop in a year, with South Korean automakers bucking the trend to post nearly 3 percent gains amid troubles at rival Toyota.

* Commodity markets ended January with their worst losses in more than a year as a surge in the dollar and weak demand outlook caused prices to stumble after a strong run through 2009.

* China’s economy made a strong start to the year, according to a pair of business surveys released on Monday that also underlined the mounting challenge policymakers face to curb inflation.

* Inflation and asset bubbles are the biggest worries for the Chinese economy, a central bank adviser said on Monday. Fan Gang, the only academic member of the People’s Bank of China’s monetary policy committee, told a forum that China needed to address the problem of excessive liquidity.

FUNDAMENTALS

* Mining group Xstrata Plc posted an 11 percent rise in annual output of coal, its most profitable product, while 2009 mined copper production fell by 5 percent.

* Oleg Deripaska will remain as UC RUSAL’s chief executive after losing majority control of the indebted aluminium giant in a $2.2 billion IPO, he said in an interview cleared for publication on Monday.

* Australian boutique equities fund Northward Capital expects robust economic growth this year, which will help boost its favoured plays including Rio Tinto, Sims Metal and tourism stocks.

* Russia’s metals giant Norilsk Nickel expects to book a $2 billion net profit for last year after it ended 2008 with a loss of $449 million, Russian media reported on Saturday.

* Minmetals may restart zinc concentrate output at its Century mine on Tuesday, the company said on Monday, after a severe storm last week forced it to shut its export terminal and evacuate staff.

TECHNICALS

* Copper support at $6 620, resistance at $7 053, 14-day RSI at 19.7.

* Aluminium support at $2 057, resistance at $2 130, 14-day RSI at 17.5.

Tin was the only metal that bucked the trend, rising 2.5 per cent to hit its highest since September 2008, as the fundamentals for the metal have improved after recent upbeat data and tighter exports from the top producer Indonesia.

Benchmark copper for delivery in three months on the London Metal Exchange edged down to $7,555 (U.S.) a tonne by 1100 GMT, from Monday’s $7,567.5 a tonne. The metal, used extensively in construction, touched a 17-month high last week.

The U.S. dollar was flat a basket of currencies, holding on gains made after an official from a Chinese sovereign wealth fund said he did not think the U.S. currency would depreciate more.

“One reason why metals are falling is the dollar,” said metals analyst Daniel Brebner at Deutsche Bank. “Also Alcoa numbers that came after the market’s close yesterday were pretty weak and are dampening the market,” he said.

Alcoa Inc. , one of the world’s largest aluminum producers, posted a narrower quarterly loss on Monday, but the results fell short of expectations.

The company said although aluminum prices are climbing, demand from some customers, especially plane makers and the commercial construction sector, was not expected to improve soon.

Disconnect

In the face of persistently weak demand, rising global stockpiles are a major concern among investors. Chile’s mining minister warned on Monday that copper prices could face a downward correction as inventories climb.

Copper stocks rose by 1,975 tonnes to 517,175 tonnes, their highest since March 2009, while nickel stocks are at 159,726 tonnes, just below Monday’s record high of 159,792 tonnes.

“The feedback from the physical desk echoes what the Chileans are saying – demand is pretty lacklustre – indeed, producers are asking if we can take more material,” a senior trader based in Singapore said.

“There are periods of disconnects between the fundamentals and prices and this is clearly one of those periods. The prices are looking a little over extended at this point,” Mr. Brebner said, adding that there could be further falls for zinc.

LME zinc inventories fell by over 2,000 tonnes, but a 30 per cent rise in Shanghai zinc stocks offset any potential boost to the zinc price which was at $2,543 a tonne versus $2,573 the day before.

Aluminum inventories also fell by 3,675 tonnes, but prices were down at $2,321 a tonne from Monday’s $2,330 a tonne. Traders said worries about power shortages in China and upbeat assessments on demand from UC Rusal could help ward off a larger decline.

Around 70 per cent of the total 4.6 million tonnes of aluminum stocks in LME warehouses are said to be tied up in financing deals. Aluminum cancelled warrants – material earmarked for delivery – stood at 244,700 tonnes, equivalent to the 18 per cent of the remaining 30 per cent.

Nickel was at $17,997 a tonne from Monday’s $17,890 a tonne while lead was at $2,500 a tonne from $2,532 a tonne.

Tin rallied as high as $18,350 a tonne, before easing to $18,275 a tonne versus $17,890 a tonne.

“We said last month that tin prices were finally threatening to break higher, having traded in a sideways direction since June when they decoupled from the uptrends in the other metals,” Standard Bank said in a research note.

“Based on our upwardly-revised forecasts, we are looking for a further increase of 29 per cent this year as the global economy recovers, demand improves and as restocking gets under way.”

Aluminium rallied on supply concerns as harsh cold weather hit parts of China. Health concerns over lead production in China boosted lead and zinc to multimonth highs.

At the New York Mercantile Exchange’s COMEX division, copper for March delivery rallied to a session peak at $3.5220 per lb, the highest level for the red metal on the spot daily third position chart since August 2008. The benchmark contract settled up 8.10 cents at $3.4945.

Benchmark copper for three-months delivery on the London Metal Exchange closed up $175 at $7,660 a tonne, after hitting another 16-month top at $7,742.

“Today is mostly a macro play again,” Michael Widmer, an analyst at Bank of America said. “Some of the car sales data from the United States wasn’t too bad, and manufacturing data wasn’t too bad either.

“People are increasing exposure to metals at the moment.”

Data on Tuesday showed a surge in new factory orders, offering assurance the economic recovery remained on track.

Later that day, the outlook for metals demand got a boost from figures showing U.S. auto sales ended 2009 on an upswing. There also was strong manufacturing data from the United States and China this week.

“Good news, bad news, we’re still going up,” Craig Ross, vice president of Chicago-based ApexFutures.com said, referring to the red metal’s parabolic price gains throughout 2009 and at the start of the new year, even as fundamental support from labor action in Chile faded.

News that Chile’s Codelco, the world’s No. 1 copper producer, had resumed operations at its massive Chuquicamata complex after workers voted to end a strike failed to stem the bullish momentum.

“This is a bull market and it looks like the $4.00 level is the next stop … probably sometime in this first quarter,” he said.

But analysts said copper and aluminum may come under some pressure as their weightings are reduced in the Dow Jones UBS Commodity Index next week.

CHINA SNOW

Aluminium ended at $2,385 from $2,302. The metal used in transport and packaging earlier hit $2,394, its highest since October 2008, as analysts said winter weather conditions in China were supporting prices.

“The snow storms are likely to generate concerns over lack of availability of metal,” said Daniel Major, an analyst at RBS Global Banking & Markets.

Zinc closed at $2,718 from $2,575, earlier hitting $2,725, its highest since early March 2008. Battery material lead ended at $2,680 from $2,523, having touched $2,690, its highest since early May 2008.

Both metals, which are often produced together, were also boosted by market talk of renewed health concerns over lead production in China, which one media outlet said had led to the closure of a battery plant in the country.

“They have closed this one plant, and you can be absolutely certain they are going to look at others,” John Meyer, an analyst at investment bank Fairfax said. “Anything like this tends to lead to lead producers having problems.”

Fairfax estimates that China will produce about 1.724 million tonnes of lead this year, which is 19 percent of annual global production.

A fresh rise in LME copper stocks reminded investors that demand outside of China remained weak and Chinese purchases have cooled.

China is the world’s top consumer of the metal. Inventories climbed 2,050 tonnes to a 9-1/2 month high of 507,400 tonnes.

Tin was untraded in closing LME rings but last bid at $17,800 from $17,350, but earlier hit a 15-month high at $17,825, while nickel ended at $19,155 from $18,710.

* Shanghai copper breaks 10-day run of gains By Rujun Shen and Jacqueline Wong

SHANGHAI, Jan 7 (Reuters) – Shanghai copper was steady on Thursday, having fallen from an early 18-month high in volatile trading after China’s central bank possibly signalling tighter liquidity. The People’s Bank of China unexpectedly raised rates at a three-month bill auction, which traders said could signal the start of monetary tightening.

“Investors are nervous, and panic when there’s the slightest sign that could cause prices to fall,” said Li Rong, an analyst with Great Wall Futures. The benchmark third-month Shanghai copper futures contract closed the morning session down 0.1 percent at 61,600. The most-active contract for April delivery gained 0.4 percent to 61,870 yuan a tonne.

The swing from the high to the low was the largest since December 2007, in heavy volumes. It comes after 10 days of gains for Shanghai copper, equalling its longest winning streaks achieved in December 2005 and April 1994. Other industrial metals also fell. Shanghai’s benchmark steel rebar futures contract fell by its 5 percent daily limit to 4,036 yuan a tonne, before easing to 4,168 yuan a tonne.

Three-month copper on the London Metal Exchange hit $7,796 a tonne, the highest since Aug. 22, 2008, before easing to $7,650 a tonne. “Looking at the volume that went through, it appears as if someone dumped a long position near $7,800. If you’ve been riding this for a couple of weeks, you’ll be getting out of this with $1,000 in your pocket,” a trader in Singapore said.

“The current metals prices have nothing to do with fundamentals. It’s all about speculation and market sentiment,” said Guo Yong, an analyst at Jinrui Futures. “The more speculative money is in the market, the more volatility we will see in prices.”

On the supply side, workers at Chile’s Chuquicamata copper mine have returned to work. Owner Codelco said it would work to ensure it makes up any output losses. Copper inventories in LME rose again on Wednesday, up 2,050
tonne to 507,400 tonnes, highest since late March, 2008.
Base metals prices at 0337 GMT
Metal Last Change Pct Move End 2009 YTD pct
chg
LME Cu 7650.00 -10.00 -0.13 7375.00
0.00
SHFE Cu* 61600.00 -50.00 -0.08 59900.00
2.84
LME Alum 2345.00 -40.00 -1.68 2230.00
5.16
SHFE Alum* 17585.00 -375.00 -2.09 17160.00
2.48
COMEX Cu** 345.75 -2.00 -0.58 332.75
3.91
LME Zinc 2670.00 -48.00 -1.77 2560.00
4.30
SHFE Zinc 21595.00 25.00 +0.12 21195.00
1.89
LME Nickel 18950.00 -205.00 -1.07 18525.00
2.29
LME Lead 2620.00 -60.00 -2.24 2432.00
7.73
LME Tin 17375.00 -425.00 -2.39 16950.00
2.51
LME/Shanghai arb^ -494
Dollar/yuan 6.8271 \ 6.8281
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

Shanghai copper has now risen for 10 consecutive days, matching record runs of rises in December 2005 and April 1994.

The third-month Shanghai aluminum futures contract rose by its daily 5 percent limit from the previous session’s settlement to 18,045 yuan a ton, as investors worried the harsh winter weather could disrupt supplies.

“The weather has had some impact on our production,” said an executive at an aluminum smelter in central China’s Henan province, which is a major aluminum producer, and was recently hit by the cold spell. “We get reduced power supply for some hours of the day. But so far the impact is not significant.”

The US released mixed economic data on Tuesday, showing sharper than expected home sales in November, but a surge in new factory orders offered assurance the economic recovery remained on track.

Recent manufacturing data from the US and China pointing to a steady economic recovery painted a rosy picture for industrial metals demand.

“The bullish sentiment in the market is extremely strong these days. We’ll see prices continuing to rise before a correction, possibly around the level $7,700 to $7,800 a ton,” said Wang Zhouyi, an analyst at Shanghai CIFCO Futures. “Some investors who closed their positions before the New Year’s Day holiday are now back buying again.”

Shanghai’s benchmark third-month copper futures contract hit a 17-month high of 61,850 yuan a ton, before ending at 61,650 yuan, up 2 percent, its biggest daily gain in two weeks. The most-active contract for April delivery rose 1.7 percent to 61,630 yuan a ton.

Three-month copper on the London Metal Exchange hit $7,606, highest since Aug 28, 2008, before easing to $7,590 a ton by 0700 GMT.

But some analysts warned the frenzy could fizzle soon.

“The upward momentum in copper is nearing an end, partly as prices are under the pressure from commodity index rebalancing. The growing LME stocks also weigh,” said Peng Qiang, an analyst at COFCO Futures.

Defying the Dollar

The dollar remained strong against the yen and other key rivals, but copper took its cue more from the looming strike as well as the better than expected Chicago PMI. As such, the rebound in dollar had little impact on copper (as well as other industrial metals) on confidence about the bull-run into 2010, thanks mostly to speculative buying.

So far, the red metal has more than doubled this year, leading gains in the CRB Index of 19 raw materials, and climbed almost fourfold in the decade as consumption rose in emerging economies including Chindia.

However, despite the improving global economic backdrop, there is far from a consensus on how copper will fare throughout the next 12 months.

2009 – Beyond Reality

Despite its red hot streak in 2009, copper’s continuous rally in the face of swelling inventories, a sign of weak consumption, has perplexed many in the market. Stockpiles and production worldwide have steadily increased this year alongside with copper prices. (Fig. 2)

The latest data showed London Metals Exchange (LME) stocks rose 6,375 tons to above 500,000 tons, their highest level since April. Furthermore, the almost 600,000 tonnes in LME and Shanghai exchange warehouses are enough to cover the lost output from strike at Chuquicamata for more than a year.

Copper A LA Gold

China’s unprecedented $585 billion infrastructure-focused stimulus package and strategic stockpiling efforts have had a major impact on copper prices this year. This is evidenced by the 165% year-over-year surge of China’s imports of refined copper to 2.58 million tonnes in the first nine months of 2009.

On that note, the market has looked beyond warehouses. Some even say copper is behaving more like gold rather than strictly a base metal. (Fig. 3)

Of course, a number of other factors such as an anticipated global economic revival, new investment cash, index/fund buying, a weaker U.S. dollar, concern over labor disruptions, have also contributed to overshadow bearish indications of the copper inventory build-up.

Copper Currency Standard?

While India is trying to accumulate gold reserves, China is going one step forward by buying up industrial metals on a scale that appears beyond the usual commercial reasons. Some believe Beijing may have made a strategic decision to stockpile metal as an alternative to US Treasuries and dollar holdings as it safeguards China’s industrial revolution, while the West may one day face a supply crisis.

Speculation of an ultimate “Copper Standard” also swirled when in March, 2009, Zhou Xiaochuan, the governor of People’s Bank of China, reportedly called for a world currency modelled on the “Bancor”. The Bancor was to be anchored on 30 commodities – a broader base than the Gold Standard.

Copper “The Red Gold”?

Meanwhile, India’s $1.2 trillion economy expanded 7.9% in the 3rd quarter of 2009, the quickest pace in six quarters. The growth lagged behind only China among the world’s major economies with equally strong demand from auto and power sectors. Copper demand in India is expected to soar by 6% next year, in line with the GDP growth forecast of 7%. .

As China and India each is looking to compete and develop their economies together, India could step up their copper buying efforts as well. Then, currency standard or not, copper could become the ultimate red gold as a strategic asset as well as an inflation hedge.

Electric Avenue Will Take It Higher

China is expected to expand 8.5% this year, according to the median estimate of economists surveyed by Bloomberg. Urbanization plus the next industrial revolution led by hybrid cars need plenty of copper. China plans to boost its annual production of electric or hybrid cars to 500,000 in the next two years, up from 2,100 last year. Such a shift would require huge amounts of electrically conductive copper.

Technically Bullish

Copper prices are still off their all-time high of $8,940 on LME notched in July 2008, before the global economic downturn caused markets to tumble.

Most of the technical signals for copper (Fig. 1) are very bullish, albeit a bit over-bought on some indicators like RSI & Bollinger Bands. But since the market just put in a new high, it may continue to become more overbought before corrections may occur.

Right now, it looks like the $7,500 to $7,600 levels should be the next resistance with potential retracement towards $6,500 and $5,800 levels. But if Western recovery continues to disappoint, or remain mixed, as they currently are, then we could see prices revert back to between $5,000/t to $6,000/t in 2010.

Chinese Copper Control

China is the world’s largest copper consumer with about 38% market share, and its record levels of copper imports this year has made up for some of the slack demand in the U.S. and Europe. Copper, the hottest among the base metals, is controlled mostly by China as the single largest buyer in the world.

Now, some market participants say imports of refined copper into China may not reflect demand for at least the next six months, or longer, as China digests stocks built this year as a result of record imports.

In addition, China Daily reported on Nov. 12, 2009 that copper stockpiles held in duty-free warehouses in China may be re-exported after surging to as much as 350,000 tons from almost none at the start of the year. The country’s imports of refined copper may lower to 1.6 million tons in 2010. However, the 350,000 tons reportedly belong to mostly private speculators and account for a fraction of the total imports.

Clearly, there is some copper supply/demand imbalance in China as the country is not entirely immune to this synchronized global recession. However, with copper price doubling up in 2009 and as China generally prefers buying on the dip, this re-export could also be a strategic tactic of Beijing in an attempt to push down the prices of copper.

2010 – Reality Bites

The general “recovery trade”, predicated primarily on China and other emerging economies infrastructure and industrial growth, lifted copper to overshoot the underlying fundamentals and somewhat disconnected from reality in 2009.

The continued rising copper stocks suggest demand has yet to recover outside China. As we enter 2010 with China taking an expected copper break, the trend for copper prices will increasingly be determined by the shape of economic recovery in the OECD.

The U.S. is the dominant focus for signs of recovery. The EU 15, which accounts for about 20% of global copper consumption, is also important, but the lead will come from the US.

The past 12 month it’s been a variety of reasons that lifted all commodities higher. Copper will unlikely have a repeat performance of 2009. The strength in copper may remain at least in the first quarter of 2010, but after that the market will face a lot of uncertainties regarding the Dollar, interest rate, monetary policy, China’s copper imports/exports change, and the high inventories as well.

An Economic Precursor

Either as a currency or as a new precious metal, one thing for sure is that copper is a bellwether for the economy because it is mainly used in housing, power generation and other cyclical sectors; therefore, it tends to lead other commodities.

Copper price dynamics over the next year or two could serve as a precursor to see if Asia can shift its focus from an export-oriented model to one that’s more internal consumer-based, as well as a realistic gauge of the global economy.

Copper prices fell steep in the final months of 2008 with the December spot price on the London Metal Exchange (LME) at $1.39, as compared with the 2008 peak of $3.94 which was hit in April. But in the first three months of 2009, the LME spot copper price has averaged $1.55.

Bloomberg News reports that LME metals jumped in price in March as some investors bought commodities in anticipation of a rebound in global economic growth. The exchange’s index of copper and five other industrial metals increased 11% in March, the most in 13 months. However, the International Copper Study Group recently announced that copper supply ended 2008 ahead of demand. Refined copper production rose by 3.4% on the year in 2008 to just over 14.7 million metric tons, the ICSG said in its latest report. Copper usage was up 1.9% in the same period to 13.9 million metric tons.

The head of research Nicholas Brook at London-based ETF Securities, who says that prices of copper “have probably found a floor” since several mining companies have cut activity in the past year due to lower prices and reduced access to financing. In a conference call reported by Reuters, Brooks predicts that copper prices in the short term will be underpinned by China, which has announced aggressive infrastructure spending.

However, the buying surge in China may not be here yet, as China’s economy grew by 6.1% in the first quarter, its slowest pace in 10 years. Premier Wen Jiabao says that while China’s economy is in better shape than other nations, “it is still some ways off from a full recovery.”

The commodities team at New York-based J.P. Morgan Securities has written to clients that “the undeniable reality for the copper market is that outside of China, demand remains moribund.” These analysts believe that a lasting recovery in copper’s price still is a long way off but are reluctant to pronounce a bottom because “even with projections of a modest improvement in western world demand in the second half, when stimulus efforts start to take effect, we believe that China’s growth will not be enough to offset the demand destruction seen in the western world.”

Still, the J.P. Morgan analysts do see copper averaging a slightly higher $1.67 in 2010, noting that strong gains are not likely for some time due to high inventories and fairly weak overall demand.

Eleven of 19 analysts, investors and traders surveyed by Bloomberg, or 58 percent, said copper would gain next week. Eight predicted lower prices. The metal for three-month delivery was 3.4 percent higher this week at $7,087 a metric ton at 5 p.m. yesterday on the London Metal Exchange.

Copper, used in electrical gear and construction, rose to a 14-month high of $7,170 a ton on Dec. 2 after reports showed manufacturing increased at the swiftest pace in five years in November in China and rose for a fourth month in the U.S. European service and manufacturing industries expanded at the fastest rate in two years in November, figures showed yesterday.

A purchasing managers’ index released on Dec. 1 by HSBC Holdings Plc for manufacturing in China gained to a seasonally adjusted 55.7 last month from 55.4 in October. In the U.S., the Institute for Supply Management’s manufacturing index came in at 53.6, above the level of 50 that signals an expansion. The countries are the world’s two biggest copper users.

A composite index for European service and manufacturing industries increased to 53.7 from 53 in October, Markit Economics said yesterday.

The weekly copper survey has forecast prices accurately in 32 of the past 66 weeks, or 48 percent of the time.