Copper drifts on strong dollar, patchy China recovery

Official data released at the weekend in China showed inflation at a 10-month high in February

Copper drifted lower on Monday as the dollar held near a seven-month high against major currencies and risk appetite was eroded by disappointing data from China and worries about Italy, although losses were limited by some demand for metals from China's consumers.

Official data released at the weekend in China - which consumes 40 per cent of the world's copper - showed inflation at a 10-month high in February while factory output and consumer spending were weaker than forecast.

Also putting pressure on metals prices, the dollar index against a basket of major currencies held flat not far off seven-month highs hit on Friday after much stronger than expected US jobs data. A strong dollar makes dollar-priced metals costly for European investors.

In Europe, Fitch downgraded Italy's credit rating by one notch to BBB-plus, with a negative outlook, citing political uncertainty following last month's inconclusive election.

Three-month copper on the London Metal Exchange was down 0.63 per cent at $7,692 a tonne by 0950 GMT. Copper last week showed its first higher weekly close in four, though the metal remains down more than 2 per cent for the year with post-holiday demand from China having disappointed.

"I think buying in China is improving, but the start to seasonal restocking has been more subdued than expected," said Angus Staines, commodity and mining analyst at UBS.

"We expect seasonal restocking to support the (copper) price above $8,000 a tonne in the very short term. After that, as seasonal demand begins to fade, the price will reflect an oversupplied market."

The copper market is expected to record a surplus this year for the first time since 2009, while LME copper stocks have been rising consistently this year, and are currently at 513,550 tonnes - their highest since April 2010.

Stocks in Shanghai bonded warehouses are estimated at around 900,000 tonnes, while Chinese imports have been falling consistently as traders dip into local supplies rather than restocking.
    

Still, Chinese traders said some buying was supporting LME prices, helped by higher prices of Shanghai copper compared with the landed cost of LME metal, which attracts a 17 per cent value-added tax for imports.

"A bit late but they (consumers) finally came in after Lunar New Year," said a trader based in Shanghai.
          
Analyst Bonnie Liu of Macquarie in Shanghai concurred: "Post Lunar New year,we are definitely seeing demand pick up."

"China's macro picture is getting better but there's still a lot of uncertainty, especially on the details of the public policy to be released this week," she added.

Communist Party chief Xi Jinping formally takes over as China's new president during the annual meeting of the National People's Congress which ends March 14.

In other metals traded, soldering metal tin fell 1.03 per cent to $23,550 a tonne, while zinc, used in galvanizing, dropped 1.53 percent to $1,945 a tonne.

Battery material lead fell 1.08 per cent to $2,189.50, aluminium  dropped 1.13 per cent to $1,942.75, while stainless-steel ingredient nickel fell 0.96 per cent to $16,579 a tonne.