copper consolidates on subprime fears

Metals - Copper consolidates on subprime fears; lead rises on supply tightness
August 14, 2007: 10:45 AM EST


LONDON, Aug. 14, 2007 (Thomson Financial delivered by Newstex) -- Copper consolidated in light trade following yesterday's gains, as a nervous market continued to watch for further problems emerging from the US subprime crisis.

Copper prices had risen yesterday in line with a recovery in global equities, following a decline of around 3 pct last week on subprime jitters in the wider financial markets.

However, renewed volatility in European equities today has weighed on prices for the majority of base metals.

The standout exception was lead, which rose on supply concerns after stockpiles at LME monitored warehouses fell by another 700 tonnes to 30,850 tonnes.

'Lead stocks were clearly already very low, and now they're at a two year low,' said Barclays (NYSE:BCS) Capital analyst Gayle Berry. 'It works out at about two days worth of consumption. The market's tight, and it's going to get tighter still.'
Demand for lead for use in car battery construction - the number one use of the heavy metal - is expected to increase going into the autumn months.

'The summer has been cold and wet in the north of Europe, and very warm in the south. Replacement car battery demand increases with extreme weather conditions, and that's exactly what we've been seeing,' said Berry.

At 3.10 pm lead for three month delivery was higher at 3,044 usd against 3,005 usd at the close yesterday, while three month copper was trading down at 7,476 usd versus 7,555 usd.

'The (copper) stock numbers have encouraged some buying,' said BNP Paribas (OOTC:BPRBF) analyst David Thurtell. 'However, the subprime issues are still definitely weighing on things and people are very, very cautious in case there's any impact on the real economy.'
Stockpiles of the red metal at LME monitored warehouses fell for the third day in a row, declining by 225 tonnes to 114,075 tonnes, prompting a degree of support from investors.

Copper prices are also receiving some support from reports that a ship carrying around 40,000 tonnes of copper concentrate from Chile to India ran aground off the South American coast on August 9.

'The copper concentrate market is very tight at the moment,' said Standard Chartered analyst Dan Smith. 'It's perhaps surprising that it hasn't had more of an impact, though that's partly as it coincided with all the turmoil in the financial markets.'
Copper prices are underpinned by ongoing strikes at three Grupo Mexico mines, raising market players' fears of a tightening supply picture.

Tensions remain high after the death of a union worker in clashes outside of La Caridad mine on August 11. Union officials have now accused local government authorities of forcing confessions from two of its members alleged to have been involved in the death.

Management and unions at Grupo Mexico's giant Cananea mine are also waiting for a court hearing on the legality of the strikes, which is due on August 15.

Elsewhere, nickel was up slightly, but remains at lower levels. The grey metal has lost almost 50 pct since striking an all time record of around 52,000 usd earlier this year, on a combination of demand destruction at higher prices and falling usage.

By 3.10 pm am nickel was trading at 27,700 versus 27,500 at the close yesterday.

Meanwhile, aluminium eased to 2,575 usd from 2,593 usd, zinc was also down at 3,320 usd from 3,360 usd, while tin dropped to 14,800 usd against 15,300 usd at the close yesterday.

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