Copper Gains but Demand Worries Weigh on Metal


"Prices likely to weaken into 3Q. . .then perhaps rebound in 2011."

Industrial metals prices mostly fell on Wednesday, losing their grip on two-week highs as weak U.S. housing data stoked concerns about the demand outlook despite copper rising as the euro came back from its day's lows.

Benchmark copper on the LME closed at $6,655/ton in official rings from $6,600 at the close on Tuesday, having fallen to as low as $6,550 after the data. The metal used in power and construction earlier touched $6,775/ton, matching the high set on June 2.

Base metals prices softened after data showed U.S. housing starts fell more than expected in May to their lowest level in five months, knocking confidence in the health of the U.S. economic recovery.

"Risk aversion will keep pressure on these prices," said Deutsche Bank Metals Analyst Daniel Brebner.

"Our expectation is that prices are likely to weaken into the third quarter and then perhaps rebound into 2011," he said, citing concerns about the European demand outlook.

"The longer-term characteristics of copper look positive, but I'm just very worried about near term."

Copper prices are up some 10% from an eight-month low of $6,037.50/ton on June 7, at the height of the debt crisis in Europe. Prices have been supported by recent, strong manufacturing data from China and the U.S.

"We are becoming much friendlier to the markets and suspect that the current move higher may hold up better than previous efforts," MF Global said in a research note.

"When it comes to existing uncertainties, such as the European sovereign debt crisis and fears of a Chinese slowdown, there is better than 50/50 chance that we will successfully navigate through both these issues."

Also helping buoy sentiment are stocks of copper in LME warehouses, down about 20% at 459,150 tons since the middle of February.

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