Copper steady

Published Jun 18, 2012

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Copper retreated from a three-week high to be slightly higher on Monday as relief that pro-bailout parties in Greece won a slim majority soon turned sour, with investor focus turning to debt and banking problems in Spain, Europe's third-largest economy.

Greece's centre-right New Democracy party will try to form a coalition with other parties that back the international bailout after a narrow election victory on Sunday, which eased fears the country might suddenly exit the euro.

But in a sign investors remain weary about Europe's debt, Spanish 10-year government bond yields rose above 7 percent amid news Spanish banks' bad loans rose to the highest level since April 1994.

“We need to get economic growth ticking up. Europe is in recession, in the US we have weakening data and we have slowing growth in China. We need to see a supply response. We're going into the summer lull, so there's potential for

weakness across the space,” said Nick Moore, head of commodity research at RBS.

Benchmark three-month copper on the London Metal Exchange was up 0.22 percent to $7,527 a tonne from $7,510.50 by 11:02 SA time. The red metal earlier jumped to a session peak of $7,615 a tonne, its highest since May 30.

Doubts remained whether the new Greek government can turn to further austerity measures with the economy already into a fifth year of deep recession.

Spanish and Italian government borrowing costs are seen as unsustainable, while in the United States further gloomy data on industrial output and consumer sentiment added to signs the economy's recovery is on shaky ground.

The spate of weak data will keep investors looking for more clues on the chances of a third round of quantitative easing at the US Federal Reserve meeting this week.

“This week, trading conditions could become more erratic despite the Greek election outcome. Last week's performance was mainly driven by mounting expectations for further monetary easing. This week, the FOMC meeting might disappoint market participants,” said Credit Suisse in a note.

BEARS STILL LURKING

In a sign that the bears were still lurking, the latest data from the Commodity Futures Trading Commission showed that funds had extended their bearish copper bets last week, turning in their largest net short holding since March 2009.

Also weighing on the metal, demand from China, the world's top copper consumer, has been sluggish along with its overall economy, pushing down copper prices to a 2012 low of $7,233.25 in early June.

“Whenever we get a respite from macroeconomics, we turn to fundamentals and worry about sluggish Chinese copper demand. But these rallies do give investors some shorting opportunities,” said Orient Futures derivatives director Andy Du.

“Copper's longer term outlook seems bearish but with strong support seen at $7,200,” he added.

All eyes are on a Group of 20 summit in Mexico on Monday and Tuesday, which many expect will result in the world's major economies agreeing on new crisis-fighting loans to the International Monetary Fund.

In other metals traded, aluminium, a light metal used in packaging and transport, edged up 0.19 percent to $1,936.75, not far off Friday's low of $1,925.25 - the weakest point since July 2010.

The metal, which is in chronic oversupply, is under pressure from news China's top aluminium producing province of Henan may subsidise electricity used by loss-making smelters in a bid to spur local growth.

Other provinces might adopt the tactic too, helping to keep production strong and limiting imports.

Elsewhere, zinc fell 0.14 percent to $1,901.25, with the premium for nearby or cash material over the three month price at $9.75 a tonne, its highest in three and a half years - indicating tight nearby supply.

Soldering metal tin fell 1.02 percent to $19,499 a tonne, battery material lead fell 0.13 percent to $1,920.50, while stainless-steel

ingredient nickel rose 0.36 percent to $16,885. - Reuters

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