Tuesday, 15 February 2011

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Copper falls from record highs

  • Tuesday, 15 February 2011
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  • Copper fell from record highs today on concerns further monetary tightening in China may affect base metals demand and as worries about political instability in the Middle East curbed risk appetite.

    Chinese inflation hit a lower-than-forecast 4.9% in January, but price pressures excluding food were their strongest in at least a decade and will force the central bank to keep tightening policy.

    Benchmark copper on the LME hit a record high of $US10,190 a tonne shortly after China's headline inflation figures initially appeared to suggest there was a reduced risk of speedy monetary tightening.

    Prices then fell as the full implications of the Chinese data on policy were digested. It closed at $US10,011 from $US10,160 a tonne on Tuesday.

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    Tin also hit an all-time peak of $US32,799.

    There are still some concerns over the situation in the Middle East which are weakening the sentiment," analyst Andrey Kryuchenkov said.

    The head of Egypt's ruling military council ordered a constitutional amendment committee to finish its work within 10 days, the state news agency reported.

    "Also, this morning's Chinese CPI numbers raised worries on further monetary tightening which would slow down the economy and have an impact on demand for base metals," Kryuchenkov added.

    "Generally (Chinese inflation) is still a concern, and stronger measures still have to be implemented to cool down the local economy," said analyst Daniel Briesemann of Commerzbank.

    Copper has climbed by two thirds since June 2010 when worries about sovereign default in the euro zone sparked severe selling of investments seen as risky.

    Since then it has been pushed ahead by a rebound in the West and still robust, if slowing, growth in emerging nations, which have outpaced growth in supply.

    Preliminary Chinese trade data showed copper imports jumped a surprise 5.7% to 364,240 tonnes.

    "Copper has been choppy today but it is a good story still and can push higher. Underlying fundamentals are very supportive but not super bullish. That's the reason for the indecision by traders," Standard Chartered analyst Daniel Smith said.

    Copper can sustain $US10,000

    Despite steadily growing global copper inventories, the risk of substitution and correction potential in the very near term, copper prices will likely stay elevated over the coming months, said Citi in a note.

    "We suspect that copper can sustain the $US10,000 mark in Q2-Q3, as the market pushes into a large supply deficit," the note said.

    Citi expects a deficit of 500,000 tonnes in 2011 and a small deficit in 2012.

    Aluminium is expected to be a key beneficiary of copper substitution, for example, in heat exchange applications like air conditioning.

    "When benchmarks like the $US10,000/tonne mark are hit, consumers look carefully at substitutes and/or efforts to economise. The market is likely to lose more than 500,000 (tonnes) of consumption as a result of high prices this year," Citi's note said.

    Meanwhile, copper stocks continued their uptrend, rising by 650 tonnes net to 402,425 tonnes to now stand at the highest level since August 2010, the latest LME data showed.

    Aluminium inventories also rose, and are now some 40,000 tonnes short of record highs.

    Aluminium finished at $US2,502 a tonne, versus a $US2,514 close yesterday.

    Nickel ended at $US28,745, from $US28,895.

    Elsewhere, lead closed at $US2,635 a tonne from $US2,640 and zinc at $US2,491 from $US2,521 at the close yesterday..

    Tin, untraded in rings, was bid at $US32,500 a tonne, up from $US32,450 on Tuesday.

    It has advanced 22% this year on the back of supply constraints from top exporter Indonesia.

    (Source: http://tvnz.co.nz/business-news/copper-falls-record-highs-4029859?ref=rss)

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