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Copper Price Slides as Investors Lose Risk Appetite

Wednesday, 28 March 2012 02:55 PM

The price of copper fell more than 2 percent on Wednesday, caught up in the broad retreat in risk assets, after disappointing U.S. durable goods data cast doubt about the recovery pace in the world's largest economy.

The loss dragged copper prices back below the 200-day moving average and near the bottom end of a months-long trading range as sellers gained the upper hand after the softer U.S. data and a bearish recommendation from investment bank Goldman Sachs ignited a wave of risk aversion. The selling swept across markets like equities, crude oil and base metals.

"A lot of the economic reports out recently are suggesting that things are slowing down right now," said Mike Armbruster, broker with Altavest Worldwide Trading in Mission Viejo, California.

"The bigger (macro) picture is a little concerning for the copper market ... there's no impetus to go higher. We may be seeing a test of the lower end of the range in the next few days, or even a breakout to the downside."

London Metal Exchange (LME) three-month copper sank $186 or nearly 2.2 percent to close at $8,349 a tonne.

In New York, the May COMEX contract plunged 8.75 cents or 2.3 percent to settle at $3.7925 per pound, after dealing between $3.7825 and $3.87.

Selling pressure picked up in the early hours of the New York open after data showed new orders for U.S. manufactured goods rose less than expected in February, supporting the view that economic growth in the first quarter could be lackluster.

"On the face of it, the data seems to be consistent with our view of a slight slowdown in investment in the first quarter in the U.S. economy," said Muktadir Ur Rahman, commodities economist at Capital Economics in London.

"However, the U.S. economy overall has improved, so we think the investment side of things will improve for the rest of the year."

Market bears also pounced on a report from Goldman Sachs, which said it was shifting its recommendation on commodities to "neutral" from "overweight" on a near-term horizon, as most commodity markets including copper, crude oil and soybeans have reached the brokerage's near-term targets.

Copper prices have gained more than 11 percent this year, on track for their second-straight quarterly rise, but have been mired in a $8,100-$8,800 a tonne ($3.70-$4/lb) range since late January.

"Copper is likely to continue to trade in this range or move a bit lower," said T-Commodity partner Gianclaudio Torlizzi.

"Data from the U.S. has been a bit weaker in the last week or so and this is creating some indecision in the market. Until Chinese demand comes back though a run up is highly unlikely."



Copper stockpiles continued to mount in top consumer China, with a pick-up in consumption not seen until after May.

"Copper is stuck in no-man's land at the moment," Standard Bank metals analyst Leon Westgate said.

"The physical market is pretty moribund. You've had premiums pick up in Europe because everyone put all their eggs in one basket and shipped all their metal off to China. Metal is backing up in bonded warehouses in Shanghai, with no real physical demand at all. So you are stuck with a stalemate."

JX Nippon Mining and Metals Corp, the parent of Japan's top copper smelter, said on Tuesday the appetite for copper in China remained weak, weighed down by swollen inventories and tight monetary policy, with destocking likely to continue until after May.

China also holds more than 1 million tonnes of commercial stocks of refined copper cathode currently, a level last seen in 2009, due to high imports and weak domestic demand, which may slow arrivals in the second quarter, analysts said.

Zinc stocks in warehouses monitored by the London Metal Exchange (LME) jumped by 9,850 tonnes to 898,675 tonnes -- the highest in nearly 17 years, climbing steadily after years of market surpluses.

"The zinc market has been in a very large surplus for several years now and is looking at another surplus this year. Stocks are generally continuing to build up from already massive levels," metals strategist Stephen Briggs of BNP Paribas said.

Three-month zinc closed down $34 at $2,000 per tonne.

Nickel ended down $210 at $17,575 a tonne, pressured in part by industry data showing the global nickel market was in surplus by 7,100 tonnes in January 2012, the latest monthly bulletin from Lisbon-based International Nickel Study Group (INSG) showed.

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Wednesday, 28 March 2012 02:55 PM
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