LME Metals Dn In Asia;May Gain On Short-Covering

SINGAPORE--London Metal Exchange copper and nickel eased in Asia Wednesday, as the failure of the base metal complex to rally higher overnight damped sentiment, traders said.

Market participants in Asia are looking to London and daily stock figures to provide a clue as to whether the base metal complex can extend the bull run it has experienced over the past week.

Three-month copper pared losses and as of 0630 GMT was trading at $7,695 a metric ton, down $25 on the London Tuesday afternoon close. Nickel was down $300 at $48,100/ton and zinc had shed $11 to $3,539/ton.

LME copper had a strong start to the week, rallying over 7% in Asia Tuesday after the four-day Easter weekend. But its inability to build on those gains in London prompted some longs to book profits Wednesday, said a trader at a Chinese brokerage in Shanghai.

Other base metals, which have been floated higher by copper's bull run, also softened as a result.

However, with speculative traders still believed to be net short on copper and Chinese copper demand expected to remain strong, LME copper prices will likely rally toward $8,000 and may even shoot for last May's record-high of $8,800, analysts said.

"It's too early to say if we've reached a peak for some of the metals," said David Moore, a commodity analyst at the Commonwealth Bank of Australia in Sydney. "At the moment, the underlying demand remains strong and supply tight."

Moore added that the latest copper import data from China is consistent with the robust growth seen in other sectors of the economy such as the automotive industry and should underpin base metal demand.

China's imports of copper and copper products in March rose 28% on month to 307,740 tons and imports for the first quarter were up 58% on year.

As a predictor to future Chinese demand, though, this data may not be the best measure.

"The strong data doesn't guarantee a strong performance," said a trader at one of China's biggest copper trading houses.

The large arrivals of copper in March, likely purchased when copper was trading between $5,300-$6,500, have pressured the domestic cash price in China to a discount against the Shanghai Futures Exchange spot contract.

As a result, imports in April will likely decline, and traders in China may re-export copper to Japan, Korea and Taiwan or deliver into LME warehouses in Asia, as the market first saw Apr. 2, when 5,000 tons arrived at the Busan LME warehouse.

"I'm not sure what the tonnage will be," said the trader. "At the very least, it will be hard for stocks in Asian warehouses to decline."

Speculative short-covering may also give a boost to zinc prices, despite the bearish fundamental outlook for the second half of 2007, said JP Morgan in a daily note.

"(We) expect in the short term that with the spec community rumored to be quite short, zinc can comfortably trade toward the $3,800-$4,000 level."

The market may also closely examine the minutes of the Federal Open Market Committee's March meeting, which will be released Wednesday.

UOB analyst Robin Bhar, in a base metal report, said the FOMC's outlook on the U.S. economy may help clarify economic growth and base metal demand.

"Friday's strong payrolls number has ensured data continue to be mixed enough to maintain debate over the extent to which growth is slowing."

As of 0630 GMT, three-month aluminum was down $13 at $2,860/ton, tin was up $25 at $14,150/ton and lead was still untraded in Asia and was last quoted at $2,025/ton.