December 17, 2014 / 7:38 AM / 5 years ago

METALS-Copper drops on China output increase, Russia rouble woes

* China copper output rises in Nov from month before

* Discovery Metals says prices too low to run Botswana mine

* Coming up: FOMC releases statement at 1900 GMT (Adds details on Fed, updates prices)

By James Regan

SYDNEY, Dec 17 (Reuters) - Copper eased on Wednesday, pressured by a rise in Chinese output and concerns a sharp drop in the rouble could prompt Russian producers to churn out more metal.

Three-month copper on the London Metal Exchange had dropped $18 to $6,344 a tonne by 0600 GMT, extending losses from the previous session.

The most-traded February copper contract on the Shanghai Futures Exchange slipped 1 percent to 45,640 yuan ($7,368) a tonne.

Production of refined copper in China, the world’s biggest market for the metal, rose 3.1 percent from the previous month in November, hitting a record for the fourth straight month.

Investors were also keeping an eye on Russia after the rouble plunged more than 11 percent against the dollar on Tuesday despite a hefty interest rate hike by the central bank.

Copper prices have now plunged by around $1,000 a tonne since the start of the year, underscoring a mounting supply glut, which miners say could take years to work through.

A worldwide copper supply surplus of 300,000 tonnes is forecast in 2015 by Australia’s Bureau of Resource and Energy Economics, equivalent to half a year’s output by South Korea.

Discovery Metals Ltd earlier on Wednesday said it would suspend copper mining in Botswana within the next six months, citing the deteriorating world copper price.

Meanwhile, aluminium showed only modest signs of pulling out of negative territory. Three-month aluminium on the London Metal Exchange stood at $1,9190 a tonne, up $3.50 from the previous session’s close, where intraday trading had seen the contract touch a two-month low of $1,900.75.

Traders said uncertainty surrounding longer-term implications of an unprecedented drop in the rouble had sidelined some metals investors.

A weakened rouble could entice Russian metals producers to lift production of metals, which are sold in U.S. dollars.

Russia is the world’s sixth-biggest copper producer and second-biggest aluminium producer.

However, Russian aluminium giant Rusal on Tuesday ruled out restarting production capacity, warning it did not want to repeat mistakes made after the 2008 global financial crisis, when many producers stepped up production despite large inventories.

Investors were also starting to factor in a possible rise in U.S. interest rates.

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) concludes its final policy review of 2014 later on Wednesday, and is expected to drop particular words stating its intent to keep rates near zero as a prelude to raising interest rates next year.

Higher interest rates typically work to reduce the market price of commodities, as happened in the early 1980s. A decrease in interest rates has the opposite effect, lowering the cost of carrying inventories, and raising commodity prices, as happened in 2007-08 and 2010-11.


Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin

$1 = 6.1889 Chinese yuan renminbi $1 = 6.1943 Chinese yuan renminbi Editing by Michael Perry and Joseph Radford

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