Copper drops on expected Indonesian deal, Chinese port probe

Bareksa.com - Copper eased on Tuesday as investors worried about an expected settlement of a dispute in Indonesia that could restart concentrate exports and the impact of a probe at a top Chinese port that has halted shipments.

China, which accounts for two-fifths of global copper consumption, is also coming to the end of its peak demand period.

"I think there are two or three bearish signals that are beginning to emerge in the market. One thing is that we're now easing off the heavy demand period in China," said analyst Vivienne Lloyd at Macquarie in London.

"And it does begin to seem that a resolution will be found soon in Indonesia between the mining companies and the government, which will then allow the resumption of concentrate exports."

Indonesia's copper industry is pinning its hopes on one of the country's richest businessmen to help restart concentrate exports worth hundreds of millions of dollars, halted nearly five months ago over a controversial tax.

Three-month copper on the London Metal Exchange slipped 0.92 percent to $6,866.25 a tonne by 0953 GMT, after climbing 1.2 percent on Monday for its biggest daily gain in three weeks.

Shanghai copper rose, playing catch-up after reopening from a holiday on Monday. The most-traded August copper contract on the Shanghai Futures Exchange closed up 0.5 percent at 48,690 yuan a tonne.

Investors were also disconcerted about the possible impact of an investigation at China's northeastern port of Qingdao, which has halted shipments of aluminium and copper.

Sources said there was a discrepancy in metal at the port due to multiple issuing of documentation.

"It undermines trust and reputations and we'd expect that it would diminish the banks' enthusiasm for issuing letters of credit, and that in turn diminishes people's ability to finance copper and other metals," Lloyd said.

This is likely to further weigh on the premium of cash LME copper over the three-month contract <CMNI0-3>, which declined to $78 a tonne on Tuesday from a peak of $101 last week, she added.

Helping steady the market were surveys showing China's factory and services sectors had their best showings in months in May as demand rebounded, fuelling optimism that its economy may be steadying after a weak start to the year.

Against other commodity classes, metals are starting to look more appealing to investors, said analyst Mark Keenan of Societe Generale in Singapore. "There's a general view that metals are cheap and that commodity asset allocation mandates are increasing," he said.

ZINC

In other metals, the LME zinc market was starting to show signs of stress in spot supply with cash zinc moving to a premium against the benchmark contract on Monday.

Cash zinc settled around $5.25 higher than the three-month contract, the loftiest in nearly three months, and was trading $3.25 higher on Tuesday.

Global exchange stocks of zinc have been hard to access due to large backlogs in delivery times in some locations such as New Orleans.

Wall Street banks, big metal merchants and the LME were served last month with a lawsuit alleging they have artificially inflated zinc prices, expanding a high-profile legal case that has until now centred on the larger aluminium market.

Three month LME zinc dipped 0.3 percent to $2,076.75 a tonne. (Source : Reuters)