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Copper bounces off 6-mth low, lead extends losses

LONDON - Consumer buying lifted London copper futures more than 1 percent on Wednesday after a week of heavy falls, but the strength of the dollar forced lead lower after dropping 10 percent in the previous session.

Metals were vulnerable, with London Metal Exchange copper just off a six-month low of $7,120 a tonne and aluminium close to a five-month trough of $2,756 hit in the previous session.

Copper for delivery in three months rose $95 to $7,245 a tonne by 1102 GMT after losing 2.5 percent on Tuesday, but the market still was headed for a seventh week of declines.

Lead fell 5.2 percent to $1,650 -- the lowest since July 9 -- extending previous session losses of 9.6 percent.

"Copper is at most risk for further weakness if inventories rise," analyst Andrew Keen at Sanford C. Bernstein said.

A hefty increase in stocks would be the proof that the global economy is slowing, denting demand for the metal mainly used in the construction and power industries.

The rise in stocks, up 40 percent to 151,600 tonnes since this year's low in May, had not been enough to show that demand was sluggish, he said. Stocks are down by 23 percent this year.

"We haven't had a very large inventory build so the proof of slowing growth just isn't there yet," Keen said.

But rising LME stocks during the summer slowdown in Europe narrowed the premium for cash copper above the benchmark future

to $50 a tonne, down from $241 on July 17.

Latest LME data on holdings, which is delayed by a couple of days, shows a dominant position holding between 50 and 80 percent of the available warrants, down from 90 percent or greater in recent weeks.

"Widespread lending has forced the forward spreads in, massively forcing nearby Shanghai copper into a premium over LME prices," an LME trader said.

When the Shanghai exchange closed, the discount for Shanghai copper versus London futures prices, including China's 17 percent VAT, narrowed to 716 yuan a tonne, from 1,962 yuan on Tuesday, and its smallest since March.

Aluminium was at $2,776, up against Tuesday's $2,772. Earlier in the session it hit an intra-day low of $2,775.

LME lead bounced to an intra-day high of $1,790, up 2.9 percent, as a weaker dollar and bargain hunting supported.

"Earlier this morning we saw some short-covering and since then the dollar has turned up again against the euro triggering some sell-stops at $1,720," another LME trader said.

Firm dollar

Base metals have been under heavy pressure for the past 2 months, along with other commodities including oil and gold, as investors have sold in the face of a rally in the dollar to a six-month high against a basket of major currencies.

Copper is down by 16 percent since the start of July and the Reuters/Jefferies CRB commodities index has fallen by 19 percent from its July 3 peak.

Concerns about slowing growth in the United States, Europe and even China, which has been the main dynamo behind the five-year run in metals prices with copper up fivefold, are also driving investors out.

"Copper has been sold off together with the rest of the commodities partly due to the dollar strength and partly in response to a perceived turn in inventories," Keen said.

In industry news, Southern Copper said Tuesday it expects to produce 550,000 tonnes of copper in 2008, less than an earlier view of 650,000 tonnes.

Tin was lower at $17,300 against the last quote on Tuesday at $17,450, nickel fell $100 to $18,000, while zinc gained $12 to $1,630.