METALS-Copper ends lower as U.S. debt deadlock weighs

* U.S. debt woes sap copper bulls at start of week
* Losses limited from extended strike action in Chile
* Tight supply to help drive copper near $5/lb -Macquarie
* Coming up: U.S. July consumer confidence on Tuesday

By Chris Kelly and Melanie Burton
NEW YORK/LONDON, July 25 (Reuters) - Copper ended down by less than half a percent on Monday,
limited in its range by concerns over stalled U.S. debt deal talks and escalating supply troubles
at the world's largest copper mine.
Copper's weakness spread across the broader base metal complex, as the prospects of a failed
budget deal and potential ratings downgrade in the United States drove money into safer havens such
as the Swiss franc and gold.
The lone exception was aluminium , which fed on bouts of technical buying to hit its
highest since June 15, at $2,624 a tonne.
But even as investors scaled back some of the bullish sentiment in copper at the start of the
week, they were cautious not to take too hard a stance as a deteriorating supply situation in
Chile, where a strike at the massive Escondida mine entered a fourth day on Monday with no sign of
a solution.
The four-day labor action seemed to catch many participants off-guard, expecting the stoppage
to go no further than the initial 24 hours, analysts said.
"These labor problems are surprising traders," said George Gero, vice president with RBC
Capital Markets Global Futures in New York, forcing many shorts to cover their bearish bets later
in the session.
London Metal exchange (LME) benchmark copper ended down $20 at $9,655 a tonne.
In New York, the key September COMEX contract eased 0.35 cent to settle at $4.4065 per
lb.
Trading volumes stagnated on Monday as markets awaited the results of a deadline for U.S.
lawmakers to sort out a debt ceiling plan.
A little more than 30,500 lots traded in New York, down about 36 percent from the 30-day norm,
according to preliminary data from Thomson Reuters.
"It's a failure in the U.S. of the parties to reach agreement on raising the country's debt
limit," analyst Daniel Briesemann of Commerzbank said.
Prospects of a budget breakthrough that would allow the United States to raise its debt ceiling
and avoid default on its bond payments faded over the weekend as lawmakers missed a self-imposed
deadline to produce a deal.
This failure has driven down the dollar against other major currencies such as the yen
and Swiss franc. A falling U.S. currency makes commodities priced in dollars cheaper for
holders of other currencies.
The spotlight is still on Greece's sovereign debt, which ratings agency Moody's cut by three
notches on Monday to Ca, just one notch above default.
EVIDENCE STACKS UP
China is the world's largest consumer of copper, accounting for nearly 40 percent of global
demand estimated at around 21 million tonnes this year.
The absence from the international market of Chinese consumers, who are unwilling to buy at
high prices and are drawing on their stocks instead, has kept copper prices subdued since it hit a
record high of $10,190 a tonne on Feb. 15.
But a tight supply outlook and imminent return of Chinese buyers suggests copper will target
new records before the year is out, Macquarie said in a note.
"With mine supply growth assumptions at risk, physical inventories depleting and Chinese
sentiment likely nearing bottom, we would reiterate our expectation that copper pushes back toward
$5/lb in a three- to six-month view," it said.
Aluminium closed up $29 at $2,620 a tonne. Stocks of aluminium in LME-registered warehouses at
more than 4.38 million tonnes are down more than 34,000 tonnes since July 18.
Metal Prices at 1810 GMT
COMEX copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
Metal Last Change Pct Move End 2010 Ytd Pct
move
COMEX Cu 440.90 -0.10 -0.02 444.70 -0.85
LME Alum 2619.50 28.50 +1.10 2470.00 6.05
LME Cu 9655.00 -20.00 -0.21 9600.00 0.57
LME Lead 2675.00 -15.00 -0.56 2550.00 4.90
LME Nickel 23800.00 -150.00 -0.63 24750.00 -3.84
LME Tin 28125.00 -125.00 -0.44 26900.00 4.55
LME Zinc 2468.00 -30.00 -1.20 2454.00 0.57
SHFE Alu 17590.00 -50.00 -0.28 16840.00 4.45
SHFE Cu* 71530.00 -660.00 -0.91 71850.00 -0.45
SHFE Zin 18530.00 -260.00 -1.38 19475.00 -4.85
** Benchmark month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07