Copper flat, focus on euro zone debt worries

LONDON - Volatile copper traded flat as the negative impact of a tumbling euro and mounting concern over the potential for a euro zone debt crisis, offset expectations of renewed Chinese buying below $US7,000 a tonne.

Caution prevailed in metals overall, with speculation that ratings agency Standard and Poor's will downgrade Italy, and disappointment in some quarters over the European Central Bank's rate decision.

At 0019 AEST, copper for three-months delivery on the London Metal Exchange traded at $US6,955 a tonne from a close of $US6,959 on Wednesday, when the metal, used in power and construction, fell to an early Feb low at $US6,632.75.

"We are just waiting to see what happens with the whole euro zone situation," Daniel Smith, an analyst at Standard Chartered said.

"I'm still bullish on the recovery and this panic is overblown."

"It is going to be volatile for the time being but from any medium-term perspective, today is a good price," he added.

"Shanghai is (also) currently at a premium to the LME, so there is some potential for that to support prices."

The Shanghai-LME arbitrage window widened slightly from the previous close to 699 yuan at Shanghai's close on Thursday.

Investor focus remained firmly on the euro, which tumbled to a 14-month low against the dollar, reeling from escalating concerns that Greece's debt crisis may spread to other euro zone states.

A weak euro makes metals costlier for European investors.

The cost of protecting government debt against default in Greece and other peripheral euro zone countries rose on Thursday, a day after protests against government austerity measures in Greece claimed their first lives.

The European Central Bank kept its main interest rate on hold at a record low of 1.0 per cent earlier, as expected.

"Investors fear there will be contagion from Greece. However, the situation is completely different in Portugal and Spain, they are in a far more comfortable position. Economic data lately was very positive, even European data," analyst at Quantitative Commodity Research Peter Fertig said.

Investors wary

All the same, investors are reticent to shake off debt fears and buy metals, especially given China, the world's largest consumer of industrial metals, is currently engaged in monetary tightening.

On the plus side, however, copper and aluminium stocks in LME warehouses are falling, indicating physical demand for the metals has not dried up.

Copper stocks at 492,700 tonnes are down about 62,000 tonnes since the middle of February.

Aluminium stocks have fallen to 4.512 million tonnes, since hitting a record high above 4.640 million tonnes in January.

Aluminium, used in transport and packaging, traded at $US2,107 a tonne from $US2,121 at Wednesday's close.

Earlier the metal hit $US2,060, its lowest since mid-February.

Nickel traded at $US22,350 a tonne from $US21,925, having fallen more than six per cent to $US20,450 earlier, its lowest since late February.

The stainless steel ingredient is pressured by perceptions demand may have been overestimated and expectations that a large amount of nickel pig iron will find its way to the market this year.

Zinc was at $US2,132 from $US2,125, battery material lead was at $US2,000 from $US1,940, while soldering metal tin was at $US17,680 from $US17,550.