September 21, 2009 / 7:56 AM / 10 years ago

Copper bounces off 1-week lows; equities, dollar drive

SINGAPORE (Reuters) - Copper reversed early losses in London and Shanghai on Monday after a steep sell-off in the previous session as positive sentiment from firm U.S. equities and an easing dollar vied with worries about rising stockpiles.

Sheets of copper cathode are seen at the copper cathode plant inside the La Escondida copper mine near Antofagasta, some 1,545 km (980 miles) north of Santiago city and 3,100 meters (10,170 feet) above sea level, March 31, 2008. REUTERS/Ivan Alvarado

London Metal Exchange copper stockpiles rose 2.9 percent last week to 327,700 tonnes and have grown more than 25 percent from early July, stirring worries that demand may be slowing.

But traders and analysts noted the second half of the year typically sees inventories rise.

“Let’s get real,” ANZ’s senior commodities analyst Mark Pervan said. “The rises are the hallmark of the season and this should come as no surprise. China’s restocking phase earlier this year was much stronger than normal, so it’s natural to see an increase in stocks.”

Eight of the 10 biggest quarterly stock rises since 1999 happened in the second half of the year, while 7 of the 10 biggest quarterly falls took place in the first half.

Indeed, over that period stocks have averaged more than 400,000 tonnes, or more than 20 percent above current levels, despite the world experiencing its worst financial crisis since the 1930s.

For a graphic showing trends in LME stocks, click:

here

Pervan added: “It’s also important to remember the declines in China’s imports we are seeing month on month, that the market is worried about, are coming off a very high base.”

Trade data showed copper and semi-fabricated imports down 20 percent in August from July at just over 325,000 tonnes, and off 30 percent from a record 476,000 tonnes in June. However versus August 2008, imports were up 83 percent.

Shanghai’s benchmark third-month copper rose 0.2 percent to 48,780 yuan by 0702 GMT. Earlier prices fell 2 percent to a one-week low of 47,700 yuan. Three-month copper on the London Metal Exchange rallied $23 to $6,198. At the start of trade, copper also touched a one-week low, at $6,110.

Copper ended 1.2 percent lower last week — the third decline in as many weeks, and its longest series of seven-day losses since January.

Equities and the dollar will continue to exert their influence over prices. U.S. stocks rose on Friday lifted by corporate profit hopes, while the dollar traded slightly lower lower versus major currencies, eyeing a one-year low after a blip higher late last week.

But major markets in Asia not closed for regional holidays, Sydney, and Hong Kong, slipped 0.34 percent and 0.24 percent respectively. Shanghai ticked up 0.2 percent.

“You cannot escape the fact that the dollar and equity markets are the biggest influence on metals right now,” a dealer in Hong Kong said.

“We expect the dollar to trend lower, which will certainly put a floor under the complex — copper around $5,800 for now — barring a slump in the stock market.”

Other equity markets, including trading centres Japan and Singapore, were closed.

Aluminium fell $13 to $1,904. Prices rose 3.9 percent last week making, it the second strongest performer amongst LME metals over the period after lead, despite huge stocks and a massive overhang of smelter capacity.

Analysts said news last week that the world’s biggest commodity trader, Glencore International, was considering launching a physically-backed aluminium exchange-traded fund to absorb some of the up to 1.3 milion tonnes of metal it is thought to have bought this year may be shoring up sentiment.

“Aluminium looks like a train wreck fundamentally. Producers are concerned about stock levels. They see strong demand but there isn’t much upside, because of the inventory levels,” Pervan said.

“All that material locked up in financing deals has to come back to the market at some point. An ETF could quarantine that material for the longer term and that could be why prices have been relatively stable.”

Analysts estimate as much as 75 percent of the 4.6 million tonnes of aluminium registered in LME warehouses may be locked up in financing deals. Once the loans against which the metal has been pledged as collateral have run their course, the aluminium may be sold back to the market to repay the debt.

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