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Copper falls as market focuses on demand slump

Copper for three months delivery on the London Metal Exchange fell as low as $3,365 a tonne and was at $3,395 a tonne in open outcry trade, versus $3,459 a tonne on Wednesday.

U.S. congressional negotiators reached a deal on $789 billion in emergency spending and tax cuts but markets were unimpressed by the plan. Asian and European shares fell around 1 percent on new signs of deterioration in the economy.

Metals markets were more interested in news that China's state-owned aluminium group Chinalco would invest $19.5 billion in miner Rio Tinto in a deal that will secure China's supplies of resources and help cut Rio's debt.

Copper rose 12 percent last week on the back of short covering, driven by hopes of Chinese demand recovering. But Wednesday's weaker-than-expected copper import figures disappointed.

"It was hope over reality," analyst Robin Bhar at Calyon said. "Hope is that things are improving, reality is they are not," he said, referring to the demand outlook.

Chinese exports and imports fell unexpectedly sharply in January, underlining how badly the world's third-largest economy has been hit by the global financial crisis. Imports of unwrought copper and semi-finished copper products to the world's biggest consumer of the metal was down 20 percent.

"Overall the demand is still very very weak and therefore the inventories will carry on rising," Bhar said, adding the big jumps in stockpiles could be coming to an end.

Copper inventories in LME warehouses rose 225 tonnes to 516,675 tonnes, and aluminium stocks jumped 8,125 tonnes to a record 2.92 million tonnes.

"Copper shouldn't have gone up in the first place," an LME trader said, referring to last week's rally. "It is still doom and gloom and the demand is very low."

Norddeutsche Affinerie, Europe's biggest copper producer, said it may shorten working hours in its copper processing division in Hamburg after it swung to a first-quarter pretax loss and expected its full-year profit to be down sharply.

UNFORTUNATE

As part of the biggest overseas investment by a Chinese company, Chinalco will spend $12.3 billion on stakes of up to 50 percent in nine of Rio's mining assets.

The bailout by Chinalco represents a backdown for Rio Tinto Chief Executive Tom Albanese and the board, which last year fiercely opposed a takeover offer from bigger rival BHP Billiton

which was worth more than twice as much as Rio's shares now fetch.

"Rio's board must be beside themselves having to do this. It's very unfortunate timing, buying at the top and selling at the bottom, and you might have expected more given Rio's previously exemplary track record," said Mark Pervan, senior commodities analyst at Australia and New Zealand Bank.

Aluminium, used in transport and packaging, was down $16 at $1,383 a tonne, while key stainless steel ingredient nickel fell to $10,250/10,255 from $10,405.

Zinc, used to galvanise steel, was down at $1,144/1,144.5 a tonne from $1,167 while lead fell to $1,145/1,150 from $1,170 and tin gained slightly to $11,000/11,050 from $10,900.

Metal Prices at 1310 GMT

MetalLastChange Percent MoveEnd 2008

Ytd Percent

move

COMEX Cu153.05-0.35-0.23139.509.71

LME Alum1381.00-18.00-1.291535.00-10.03

LME Cu3360.00-99.00-2.863060.009.80

LME Lead1140.00-30.00-2.56999.0014.11

LME Nickel10105.00-300.00-2.8811700.00-13.63

LME Tin11095.0095.00+0.8610700.003.69

LME Zinc1135.00-32.00-2.741208.00-6.04

SHFE Alu12065.00305.00+2.5911540.004.55

SHFE Cu*28330.00410.00+1.4723840.0018.83

SHFE Zin10465.00225.00+2.2010120.003.41 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07