Shanghai Copper Declines on Demand Outlook as Inventories Rise

By Glenys Sim and Feiwen Rong

Nov. 4 (Bloomberg) -- Shanghai copper futures fell after global stockpiles increased to the most in more than 4 1/2-years, raising concerns that demand is declining.

Inventories monitored by the London Metal Exchange jumped 7,275 metric tons to 237,925 tons yesterday, the highest since March 2004. Prices also fell after manufacturing in China and the U.S., the world's two largest users, contracted last month as faltering economies eroded demand prospects.

``Concerns over the international economic outlook remain a depressing influence on base metals prices,'' David Moore, chief commodity strategist at Commonwealth Bank of Australia said in an e-mail today. ``As well, a large increase in LME copper stocks was a drag on the copper price.''

Copper for January delivery dropped 2.5 percent to close at 31,770 yuan ($4,646) a ton on the Shanghai Futures Exchange at 3 p.m. local time. The most-active contract earlier fell as much as 3.3 percent to 31,500 yuan.

Copper for delivery in three months on the London Metal Exchange declined 2.7 percent to $3,980 a ton at 3:43 p.m. Singapore time.

``Outside of China, the picture doesn't look good,'' Wang Xiaoli, an analyst at Goldbull Futures Co., said from Shenzhen today. ``However the large decline in Chinese stockpiles last week, as well as the premium of over 1,000 yuan for cash over futures these few days is lending support to prices.''

The premium of cash over benchmark futures rose to as high as 4,000 yuan a ton on Oct. 30, and stood at 1,530 yuan yesterday. An increase in the so-called backwardation, where the price for immediate delivery is more expensive than futures' prices, usually suggests near-term supply shortages. Stockpiles in China fell to 24,788 tons last week.

Dollar Rally

``Prices over the coming months are likely to ease'' on weakening demand and with the U.S. dollar's gains, Mark Pervan and Natalie Robertson, analysts at Australia and New Zealand Banking Group Ltd., wrote in a report today.

The euro fell for a fourth day against the dollar to $1.2614 at 3:25 p.m. in Singapore on speculation the European Central Bank will lower rates to cushion the impact of a slowing economy. The ECB may trim its benchmark rate by half a percentage point to 3.25 percent when it announces a policy decision on Nov. 6, according to a Bloomberg survey.

Among other LME-traded metals, aluminum fell 0.6 percent to $2,036 a ton and zinc dropped 0.9 percent to $1,160 as of 3:45 p.m. in Singapore. Lead fell 0.7 percent at $1,490 a ton while nickel declined 2.1 percent to $11,705 a ton. Tin fell 2.8 percent to $14,100 a ton.

To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Feiwen Rong in Singapore at frong2@bloomberg.net