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METALS-Copper ends lower as worry over China demand lingers

Published 04/04/2011, 03:13 PM
Updated 04/04/2011, 03:16 PM
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* Minmetals Resources offers to buy Equinox Minerals

* CESCO/CRU mining conference under way in Chile

* Lead touches three-year high

* Coming up: U.S. ISM non-manufacturing data on Tuesday (Adds New York dateline/byline, updates with New York closing copper price, adds details, link and analyst comment)

By Chris Kelly and Silvia Antonioli

NEW YORK/LONDON, April 4 (Reuters) - Copper ended lower on Monday, failing to sustain an earlier rise as investors weighed the potential bullish impact of a big mining acquisition against a more subdued Chinese presence at the start of 2011.

Copper's seemingly indecisive mood was exacerbated by a two-day market holiday in top consumer China and the week-long CESCO/CRU mining conference in Chile, where the industry's biggest and brightest are gathered to discuss market trends.

London Metal Exchange (LME) three-month copper backed away from a session peak at $9,475 per tonne to close at $9,330, down slightly from Friday's last bid at $9,359.

LME lead hit a three-year high of $2,835 per tonne on expectations of increasing demand in Japan for batteries to provide back-up power to help cope with the effects of the country's damaged nuclear reactors.

In New York, COMEX copper for May delivery eased 0.35 cent to settle at $4.2550 per lb.

Trading volume in New York slowed to around 26,700 lots by 2 p.m. EDT (1800 GMT), a little more than 40 percent below the 30-day norm, Thomson Reuters preliminary data showed.

"When the Chinese are absent ... the markets tend to get a drifting feeling," RBC Capital's head of base metals, Alex Heath, said.

"It's just the short-term picture that's a bit cloudy at the moment," Heath added.

Copper prices shot higher overnight after news that Minmetals Resources, China's biggest metals trading firm, had offered to buy Equinox Minerals for $6.5 billion.

Even as copper's shorter-term price trend remained unclear in recent weeks, the hint of increased merger and acquisition activity underlined a healthier, longer-term demand view from the metal-consuming Asian giant.

"It's a bullish story ... the fact that these companies are still being acquired when copper is over $9,000 (per tonne) suggests that future valuation is higher," said Justin Lennon, analyst at Mitsui Bussan Commodities in New York.

In the last few months, poor spot demand for copper in China caused prices to pull back as much as 12 percent from record highs in mid-February, at $10,190 per tonne in London and $4.6575 per lb in New York.

That recent price drop may prove temporary if the Chinese economy continues to grow, according to Chile Mining and Energy Minister Laurence Golborne.

In addition, the country's central bank raised its average copper price forecast to $4.20 per lb for 2011, from a previous view of $3.30 per lb, and predicted copper prices would average $4.00 in 2012.

"We still expect reasonably resilient growth for commodities such as copper even though we won't see the sort of growth that we saw last year," said Daniel Major, analyst at RBS, adding that 2010 growth came from a low base in 2009.

"Underlying fundamentals for copper are reasonably supportive."

COPPER STOCKS

LME copper warehouse stockpiles fell by 950 tonnes to 437,900 tonnes, the latest data showed, following a rare weekly decline of just over 1,000 tonnes last week.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 6 percent last week, but failed to ease mounting concerns about unreported inventory builds.

This led Diego Hernandez, head of the world's top copper producer, Codelco, to state his concern over the country's abnormally high stockpile on Monday.

Copper demand is generally slower in the first quarter and picks up in the second quarter. Expectations are for more outflows of inventories over the next few weeks.

The amount of copper held to back the physical copper exchange-traded product rose on April 4 more than 250 tonnes to 2,604.391 tonnes, ETF Securities' website showed. (Additional reporting by Rebekah Curtis in London; editing by Dale Hudson)

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