Copper ends down amid extended Chinese demand lull

Copper ended lower on Friday, building upon the 2.4-percent loss recorded in the first  quarter, as a lull in Chinese buying and a rising trend in
inventories continued to reflect near-term demand weakness.

Copper's losses at the start of the new quarter bucked the firmer tone in U.S. equities, which raced to their highest level since June 2008 after data showed a second straight month of solid gains in jobs and a slight drop in unemployment, which stood at two-year lows.

Without an aggressive Chinese market presence, copper's shorter-term prospects remained bleak.

"The good news for copper bulls is that we are still in a bull market. The bad news for copper bulls is that we have probably hit the long-term resistance area that is going to hold as long as China maintains the restrictive credit policies," said Howard Simons, strategist at Bianco Research Group in Chicago.

London Metal Exchange (LME) three-month copper was untraded at the close and last bid at $9,359 a tonne versus Thursday's close at $9,430.

COMEX May copper shed 4.90 cents to settle at $4.2585 per lb.

Overnight, traders were met with Chinese purchasing managers' indices data, which showed a moderation in growth in the country's manufacturing sector.

U.S. data later in the day showed manufacturing grew at a marginally slower pace in March as well, while construction spending fell to its lowest level since October 1999.

Even as the upbeat U.S. jobs data signaled a decisive shift in the struggling labor market, it failed to alter investors' weary perception of copper demand.

Instead, investors have been focusing on the hefty supply builds in Chinese and London warehouses.

"The supplies in China are building substantially ... there is no supply problem there," said Shawn Hackett, president of Hackett Financial Advisors, Inc in Boynton Beach, Florida.

"Did that happen because they overbought and they purposely built up these stocks, or did they build them up expecting demand to be there and it didn't?"

According to a report penned by Standard Bank analyst Leon Westgate this week, there are close to 600,000 tonnes of copper sitting in bonded warehouses in Shanghai and another 100,000 tonnes in China's southern ports.

"Either way, it says to me they are going to be slowing down their buying fairly dramatically in the next 3 to 6 months," Hackett said.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 6 percent from last Friday, the exchange said.

LME copper stocks fell by 1,000 tonnes on Thursday to 438,850 tonnes. Despite the withdrawal, inventories remain near their highest in eight months, having been on a stead climb since December.

Additional supply-side pressures may be seen after Chile's Collahuasi, the world's No. 3 copper mine, lifted a force majeure on copper concentrate exports imposed after an accident at its key sea terminal in December.

"People are still nervous," said Charles Kernot, an analyst at Evolution Securities. "It's still a very fragile market."

In other metals, aluminium CMAL3 closed down $14 at $2,631 a tonne, while lead CMPB3 eked out a $3 gain to $2,698 a tonne.

Tin CMSN3 was untraded at the close, but last bid at $31,500 a tonne from $31,800. Supply tightness continued to underpin both physical and futures market prices.

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