Copper falls after 5 week surge as concerns over supply eases following earthquake in Chile

Tuesday, Mar 02, 2010

Copper fell on Tuesday, after surging to five-week highs in the previous session, as concerns over supply from top producer Chile eased after the mines there reopened following a massive weekend earthquake.

Shanghai copper futures slid 2.7 percent and London prices dropped 1.6 percent, dragging the rest of the base metals complex, as investors turned their attention to the slow recovery in global demand, highlighted by bulging stocks of the industrial metal.

"Most people are of the view that that copper output from Chile doesn't look like it's going to be significantly impacted by the earthquake," said David Moore, commodity strategist at Commonwealth Bank of Australia.

Chile's mines returned to service on Monday after an 8.8-magnitude quake on Saturday briefly shut nearly a quarter of the top copper producer's output, with improving power supply easing concerns of further disruption. [ID:nN0199057]

Despite heavy damage to Chile's infrastructure near the epicentre, there was no serious damage reported to the copper mines around the capital that were shut by power outages, while the biggest deposits some 600 miles (1,000 km) to the north were unaffected.

Shanghai's benchmark third-month copper SCFc3 fell 1,630 yuan to 59,000 yuan ($8,641) a tonne at the close. It touched a five-week high of 61,050 yuan on Monday.

Third-month Shanghai zinc SZNc3 fell 3.8 percent to 17,905 yuan per tonne and aluminium SAFc3 dropped 1.8 percent to 16,550 yuan, tracking copper's losses.

Three-month copper on the London Metal Exchange CMCU3 dropped $115 to $7,285 a tonne at 0702 GMT. It jumped as much as 5.6 percent to $7,600 in the previous session, its loftiest since Jan. 20.

"Investors were initially alarmed by the Chile news. But when they found out that no big harm has come to the mines and that there is still so much material in the market, they realised prices should not have gone up so quickly," a metals trader in Shanghai said.

Copper stocks in Shanghai warehouses stood at 149,478 tonnes last week, up 28 percent from before China's week-long New Year holiday and the highest level since late September 2002.

"Copper prices have risen a little bit above levels currently justified by fundamentals," said Moore, who had forecast LME copper to end 2010 at $6,825 a tonne, with an expected global surplus of around 100,000 tonnes.

Outside of Chile, investors are eyeing U.S. economic data for trading cues including the nonfarm payrolls report scheduled for release on Friday. Due later on Tuesday are the Redbook weekly retail sales and ICSC chain stores sales in the United States and inflation and producer price data in the euro zone.

Source: Reuters