METALS – Copper Rises on Weaker Dollar, but Concerns Arise Over China According to Reuters

Copper Stocks Rise Again in LME Warehouses

• Aluminium Approaches Highest Level Since September 2008
• Upcoming: Chinese PMI Data Early Friday

By Rebekah Curtis
LONDON, March 31 (Reuters) – Copper prices increased on Thursday as a weaker dollar drew in non-U.S. buyers, following a dip to a two-week low amid concerns about sluggish demand from China.

Three-month copper contracts on the London Metal Exchange (LME) closed at $9,430 per tonne, compared to Wednesday’s close of $9,381. Earlier in the day, the price fell to $9,332—its lowest point since March 17.

This metal, essential for electrical and construction applications, is on track for its first quarterly decline since Q2 of the previous year.

The dollar’s depreciation against a group of major currencies supported base metals prices. Typically denominated in dollars, a weaker dollar reduces the cost of these commodities in other currencies.

Base metals have faced downward pressure this year due to instability in the Middle East and North Africa, which has driven up oil prices and heightened inflation worries. Additionally, natural disasters in Japan have added to the concerns.

Copper prices are currently down 8 percent from a record high of $10,190 in mid-February, as elevated prices have dampened demand from China.

"We’re still in a longer-term uptrend for copper," stated Alex Heath, head of base metals at RBC Capital, while noting, "We need to go lower before we can go higher." Analysts generally maintain confidence that anticipated supply deficits in copper this year will help sustain prices.

"It’s a very nerve-wracking market right now," Heath remarked, adding that the investment community appears increasingly jittery about the prevailing lack of momentum.

Physical Demand Insights

Adding to concerns regarding weak physical demand, copper inventories in LME warehouses rose again on Wednesday, increasing by 125 tonnes to a total of 439,850 tonnes—a steady climb since December.

The aftermath of Japan’s earthquake and tsunami has shifted investor focus towards the pressing need for infrastructure reconstruction, providing some support for copper prices.

Aluminium closed at $2,645 per tonne, up from $2,629. Credit Suisse highlighted that Chinese production has risen earlier this year as governmental power restrictions have been relaxed. "However, we believe that supply growth is unlikely to keep pace with demand growth. Consequently, inventories should decline, offering cyclical support for prices," the firm noted.

The metal used in transportation, packaging, and construction has benefitted from higher energy costs, reaching a two-and-a-half-year high of $2,656 earlier this week.

Zinc prices ended at $2,362 per tonne, rising from $2,338. Dowa Mining Holdings Co announced plans to restart operations at its Akita zinc smelter in northeastern Japan at the beginning of April. This plant, the largest zinc smelter in Japan, accounts for nearly 30 percent of total national production. Since the earthquake on March 11, about 65 percent of Japan’s zinc production capacity has been suspended.

Lead, used in batteries, closed at $2,695 per tonne, an increase from the last bid of $2,655. Tin prices rose to $31,800 per tonne from a previous close of $31,250, and nickel ended at $26,095, slightly up from $26,030 on Wednesday.

(Additional reporting by Pratima Desai)