copper ticks lower gustav supports zinc

Hope this little piggy blows this house down(LME Warehouse).
Copper ticks lower, Gustav supports zinc
09.01.08, 12:23 AM ET


China - * Copper markets edge down; tight stocks in China support
* Zinc market eyes Gustav progress towards LME warehouses

* Chinalco sees Chinese aluminium prices around 18,000 yuan (Updates prices, graphic, adds details)

By Nick Trevethan

SINGAPORE, Sept 1 (Reuters) - Copper futures ticked lower in London and Shanghai on Monday as investors weighed rising international stocks and worries about demand against the prospect of short-term re-stocking of low Chinese supplies.

Chinese zinc prices gained and London futures held steady as the market cast a worried glance over weather forecasts, which suggested Hurricane Gustav could threaten London Metal Exchange warehouses in New Orleans.

Shanghai November copper fell a modest 0.2 percent or 130 yuan to 58,540 yuan a tonne by midday. Copper stocks in Shanghai fell nearly 20 percent last week to their lowest in more than three years, supporting the domestic physical market.

"Spot prices are holding around 60,000 yuan so futures aren't going anywhere," a dealer in Shanghai said.

"Even if London prices were to break below $7,000, I doubt Shanghai would follow that quickly, because of the supply situation in China."

London Metal Exchange three-month copper fell $25 or 0.33 percent to $7,485 at 0359 GMT.

"In the near term, there is potential for an uptick in prices ... on consumer restocking, but the trend going forward is lower. Demand from countries outside China is slowing at a time when supplies are finally coming on," said National Australia Bank (nyse: NAB - news - people ) analyst Gerard Burg.

London Metal Exchange stocks are at their highest since February, although the latest release from the International Copper Study Group said the copper market was in deficit by 155,000 tonnes in the first five months of the year.

The discount for third-month Shanghai copper futures versus the benchmark London contract, including China's 17 percent VAT, narrowed to 1,366 yuan, from 1,578 yuan a tonne on Friday. The discount shrank to 716 yuan on Aug. 13, its narrowest since March.

Shanghai November zinc rose 155 yuan to 14,415 yuan a tonne, while London lost $5 to $1,806. Zinc has risen more than 10 percent since dipping to a 33-month low in mid-August.

Analysts were watching the track of Hurricane Gustav, which is expected to slam into the Louisiana coast near New Orleans later in the day as a major Category 3 hurricane.

With almost 40 percent, or 61,000 tonnes, of world LME zinc stocks in New Orleans, some traders feared a potential repeat of 2005's Hurricane Katraina, which cut off access to about half the available LME stock of zinc for months.

"I suspect the levees are more secure now than when Katrina hit. There might be a small hurricane premium in the price, but I don't expect to see much of a reaction unless the city is badly hit," said Burg.

For a graphic showing the trajectory of Hurricane Gustav, please click: https://customers.reuters.com/d/graphics/STRM_GUSTAVU2.gif

New Orleans also houses around 13,000 tonnes of copper.

A storm surge of up to 14 feet (4.3 metres) could threaten the same levees that failed three year ago during Hurricane Katrina. Federal officials say the levees protecting New Orleans are stronger now but still have gaps.

When Katrina struck in September 2005, LME zinc was trading around $1,300-$1,400 a tonne, and all but doubled by May 2006.