Ann: December Quarter 2009 Activities and Cash Fl, page-20

re: Ann: December Quarter 2009 Activities and... Still no clear indication of what lies ahead for copper -

Copper firms, but vulnerable due to China, Obama

By Pratima Desai of Reuters

LONDON Copper firmed on Monday, but is expected to come under pressure from US plans to rein in bank trading activities and further monetary tightening in China, the world's largest consumer of industrial metals.

Traders said the softer US dollar and investors looking for a bargain were helping buoy metal prices. Benchmark copper on the London Metal Exchange was at $US7,465 a tonne compared with $US7,390 at the close on Friday when the metal used in power and construction tumbled to a one-month low of $US7,194.

"Fund money and the dollar the two matter a lot for the metals markets," said Andrey Kryuchenkov at VTB Capital. "You have this short-term downtrend in copper which is squeezing the market as it's trying to push higher," he said.

The US dollar pared gains versus the yen and was down 0.1 per cent against a basket of currencies after data showed sales of previously owned US homes fell at the fastest pace on record in December.

But copper struggled to extend gains and several metals remained under pressure, mainly due to US President Barak Obama's plans to limit financial risk trading and concerns of lower availability of credit in China.

Last week Obama threatened to fight Wall Street banks with a proposal to limit financial risk taking, which he blames for the crisis that engulfed markets last year.

"China tightening fears are still with us, but the data is an indication of how strong the Chinese economy is," said Robin Bhar, an analyst at Calyon.

China's economy ended 2009 with a flourish. The country recorded 10.7 per cent year-on-year gross domestic product growth in the fourth quarter.

But data also showed inflationary pressures, which are on the rise, fuelling expectations of further measures by China's central bank to keep the economy from overheating.

Scramble

Traders said high stocks of base metals in LME warehouses were also weighing on prices.

Stocks of copper in LME warehouses at above 533,000 tonnes are near their highest since late February last year and more than double the levels since the middle of July 2009.

Nickel stocks hit a record high of 162,786 tonnes. Prices of the metal used to make stainless steel was at $US18,150 a tonne from $US18,310 on Friday.

"Stainless producers are cutting back again," a metals trader said. "There is going to be a very large surplus in the nickel market this year."

Oversupply is also a feature of the aluminium market. Stocks in LME warehouses at about 4.63 million tonnes are near the record 4.64 million tonnes set last week.

Aluminium traded at $US2,243 from $US2,232.

Prices of the metal used in transport and packaging have been supported by financing deals between banks and producers. These deals release cash for producers and earn high returns for banks.

"Premiums for physical material are rising because consumers are having to scramble for material, which is tight. It sounds bizarre, but that's a fact of today's market," Bhar said.

Zinc, used for galvanising steel, closed at $US2,315 a tonne from $US2,350 on Friday, battery material lead was bid at $US2,220 from $US2,237 and tin traded at $US17,940 a tonne from $US17,775.