April 26, 2016 / 9:57 AM / 4 years ago

METALS-Copper slides as worries about China demand resurface

* Analysts expect to see further price falls

* Trade controls such as higher transaction fees weigh

* Nickel’s outperformance this month unlikely to last (Updates with closing prices)

By Pratima Desai

LONDON, April 26 (Reuters) - Copper prices fell on Tuesday in a sell-off fuelled by worries that expectations of stronger demand in top consumer China were overly optimistic, though a weaker dollar helped support prices.

Benchmark copper on the London Metal Exchange closed down 0.7 percent at $4,962 a tonne.

“Going back to January everybody was extremely bearish about China and they are way too optimistic now,” Oxford Economics analyst Dan Smith said.

“We’re going to see a significant pullback over the next month or so, possibly over the next couple of weeks.”

Copper touched $4,318 in January, its lowest since May 2009.

Signs of economic improvement in China, which accounts for nearly half of global consumption estimated at 22 million tonnes this year, fuelled copper’s rise last week to $5,091, its highest in more than a month.

However, much of the rise was due to short-term speculators and funds in China, traders said.

“Authorities of the Dalian, Shanghai and Zhengzhou exchanges have moved quickly to impose various trade controls,” Morgan Stanley said in a note.

“The move to cap the trade surge suggests that China’s enhanced credit liquidity may soon be curtailed. This, together with China’s upcoming Labour Day holiday (May 1), should see a short-term pullback in trade activity and commodity prices.”

Trade controls include higher margin requirements and transaction fees.

Traders are awaiting the outcome of a meeting of the U.S. Federal Reserve on Wednesday. It is expected to keep interest rates on hold, but markets will scrutinise the statement for clues as to the future direction of rates and the dollar.

A lower U.S. currency makes dollar-denominated commodities cheaper for non-U.S. firms; a relationship used by funds which trade using buy or sell signals from numerical models.

Traders are also watching to see whether the downtrend in stocks of copper in warehouses monitored by the Shanghai Futures Exchange persists, for clues as to the strength of demand in China.

Three-month aluminium ended down 0.4 percent at $1,648 a tonne, lead lost 0.4 percent to finish at $1,750 and tin fell 0.1 percent to $17,425.

Zinc bucked the weaker trend to gain 0.9 percent to $1,896 and nickel rose 0.7 percent to $9,190.

Nickel has outperformed other base metals this month with a gain of about 7 percent.

“While we see moderately improving Chinese macro data combined with a more benign dollar outlook providing support ...we see little that has fundamentally changed in the nickel space to suggest that it would continue to be an outperformer this year,” Citi said in a note.


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

Most active ShFE nickel

Three month LME tin

Most active ShFE tin (Additional reporting by Naveen Thukral; editing by David Clarke and Louise Heavens)

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