METALS – Copper Declines Due to Dollar Strength and Concerns Over China Demand

China’s Demand for Refined Copper Declines in October

Copper prices fell on Monday amidst a drop in Chinese imports, raising alarms over the country’s economic slowdown and increasing fears of potential debt contagion in the eurozone. As a result, the U.S. dollar strengthened as investors sought safe-haven assets.

The industrial metal had a challenging day, closing near session lows after reports indicated that China’s refined copper imports decreased by nearly one-third in October, making it one of the weakest performers in the commodities market.

"This reflects concerns about tighter monetary policy in China," stated Bart Melek, a global commodity strategist at BMO Nesbitt Burns in Toronto. He further questioned whether the Chinese government might implement price control measures to stabilize commodity prices.

On the London Metal Exchange, copper for three-month delivery dropped by $114 to settle at $8,290 per tonne, close to the lower end of its trading range. Meanwhile, December COMEX copper saw a decline of 8.20 cents, or 2.1 percent, bringing it to $3.7515 per pound.

Despite the holiday-shortened trading week, activity in COMEX copper remained robust, with a total of 51,396 lots trading by the afternoon, surpassing the 30-day average.

Copper prices experienced some stability overnight, driven by positive momentum from the euro after the European Union and the International Monetary Fund reached a bailout agreement for Ireland. However, as optimism waned, concerns about possible contagion affecting other indebted countries in the eurozone and ongoing worries regarding Chinese demand took their toll.

According to Standard Chartered analyst Dan Smith, "The situation in Ireland is influencing risk appetite, but concerns about a slowdown in China, coupled with low copper imports, are also pressuring the market."

Despite these challenges, Asian demand remains strong, as evidenced by Chilean state-owned Codelco’s decision to increase annual physical copper premiums for Chinese buyers by 35 percent to $115 per tonne for 2011.

Aluminum ETPs Factored into Market

There are indications that prospective exchange-traded products (ETPs) related to London Metal Exchange metals, particularly aluminum, are being anticipated in the market, despite receiving no formal approval yet. Standard Bank noted that while some market tightness may stem from warehousing deals, fears regarding ETPs’ impact on metal availability are becoming evident in aluminum spreads.

In terms of pricing, the premium on LME aluminum for delivery in 27 months has decreased to $90, down from approximately $120 the previous week.

Additionally, LME copper warehouse stocks decreased by 825 tonnes to 359,000 tonnes, marking the lowest level in over a year. This supply concern has resulted in a backwardation of $23.5 a tonne for copper—indicating a premium for immediate cash transactions over the three-month contract, contrasting with a $20 discount at the end of October.

In other metal markets, aluminum saw an increase of $24 to $2,288 per tonne, while zinc declined by $22 to $2,138 per tonne. Lead dropped $27 to close at $2,250 per tonne, tin fell $700 to $24,300 per tonne, and nickel decreased by $250 to end at $21,600 per tonne.