copper up as china increases import tax

Copper prices bounded higher by almost 3 per cent on Wednesday after China raised the value added tax on a range of metal ore imports, but metals across the board were poised for their largest annual falls on record.

China said it would increase the value added tax to 17 per cent from 13 per cent on a range of imported ores and concentrates on January 1, a move analysts said aims to stabilise domestic metal prices.

But traders and analysts warned that new lows could loom for base metals in 2009 as the complex heads for unprecedented losses this year.

"The VAT issue is helpful but there are bigger issues that will come to the fore, such as the magnitude of the demand slowdown within China," said Nick Moore, a commodity strategist at RBS Global Banking & Markets.

China is one of the world's top consumers of copper for its burgeoning industries.

Steve Platt of Archer Financial Services in Chicago said demand would be uppermost in the minds of market participants as they ponder whether a recovery is in the cards for 2009.

Frank McGhee of Integrated Brokerage Services said any sign of an economic pick-up would naturally provide a spark for a short-covering pop in copper.

Copper for three-months delivery on the London Metal Exchange rose 2.6 per cent to a high of $2,986. It was at $2,930 in ring trading, against $2,910 at the close on Tuesday.

The March copper contract on the New York Mercantile Exchange's COMEX division rose 8.95 cents to finish at $1.41 a lb, having traded from $1.314 to $1.4145.

Commodities from oil to copper looked set to close out the year on a flat note, as investors looked to fiscal stimulus and an economic recovery to put a floor under their huge collapses in prices.

GLOOMY OUTLOOK

Copper struck a record high of $8,940 a tonne, while aluminium hit $3,380 a tonne, in July, before a global financial crisis deflated demand, punishing prices as a result.

"Prices are expected to stay weak in the first half next year and are likely to recover a bit in the second half, as copper supply is always relatively tighter than other base metals," said analyst Judy Zhu at Standard Chartered Bank.

LME copper stockpiles rose 2,425 tonnes to a nearly five-year high of 339,775 tonnes, while aluminium inventories grew 26,875 tonnes to 2.33 million tonnes, their highest since September 1994.

"The inventories weren't helpful and people are already looking more towards the new year and what fresh horrors are going to be unleashed onto the markets," said Moore.

Weakening demand has caused inventories to balloon, piling the pressure on metal values.

"The biggest headache isn't so much when will demand turn around but how long will it take to erode the inventory mountain," Moore said.

Aluminium was set to end the year as the best performing metal on the LME, despite soaring inventories that have pushed prices down 37.6 per cent.

Three-month aluminium traded at $1,499 a tonne, up from $1,495 on Tuesday.

"The market seems to have shrugged off yet another substantial increase in LME stocks overnight," said MF Global in a research note. "We expect the selling to resume in earnest next week when most players are back."

Lead, the worst performing industrial metal, dropped 63.8 per cent this year. It traded at $925 a tonne, down from the last bid of $954 on Tuesday.

Nickel was bid at $10,900 a tonne, up from $10,710, zinc climbed to $1,155 from $1,150 and tin was at $10,100, up from $10,000.

aap..02/01/2009 09:28AM AEST