LME Metals Ease In Asia;Mkt Struggles To Rebound

SINGAPORE -- Base metals on the London Metal Exchange softened in Asia Wednesday in choppy trade, as the complex struggles to build upward momentum to break out of its recent consolidation.

Losses on Shanghai Futures Exchange copper weighed on LME copper early on, and its weaker tone damped sentiment in zinc and aluminum, traders said.

Three-month copper dipped to a low of $7,675 a metric ton before paring losses. As of 0600 GMT, it had regained $7,700/ton, down $55 from the London Tuesday afternoon kerb.

The weak spot copper market in China pressured nearby copper contracts on the SHFE for the second consecutive day, strengthening the market's perception that April's stronger-than-expected imports of copper will prolong the domestic market's physical surplus.

LME copper tracked SHFE lower in Asia but rebounded on buy-on-dips, and the London market may shrug off the bearish news as buying interest among hedge funds and speculators remains strong, said a trader at a Japanese commodity brokerage.

"It's still mid-May, and I guess the people are still putting money into metals," he said, adding investors are looking for factors to drive prices higher.

He tipped copper to regain $8,000/ton by the end of the week or next and pegged support around $7,530-$7,540/ton.

Important indicators for the market's short-term direction will be U.S. April housing starts and April industrial production figures due out Wednesday.

The market will also try to digest the strong increase in China's copper and aluminum production in April. China's refined copper output rose 17.1% on year and 24% on month to 273,700 tons, according to an earlier Reuters report. Primary aluminum output increased 38% on year and 1.2% on month to 3.73 million tons, it said, quoting the National Bureau of Statistics.

In a daily note, BNP Paribas said it expects copper stocks at Shanghai Futures Exchange warehouses to rise by 18,000 tons or more, due to the physical surplus.

Aluminum edged lower for the second consecutive day in Asia, falling $19 to $2,854/ton, despite rebounding overnight. Zinc softened by $15 to $3,900/ton, falling further away from the key $4,000 psychological level. However, zinc and lead both received some bullish fundamental support from the recent supply and demand outlook from the International Lead and Zinc Study Group.

ILZSG is forecasting world refined zinc demand will exceed supply by 35,000 tons in 2007 and the refined lead market will register a deficit of just over 50,000 tons.

Other base metals were untraded in Asia. As of 0600 GMT, nickel was quoted at $50,701/ton, up $101 on the kerb, tin was quoted $1 lower at $14,124 and lead was quoted down 15 cents at $2,084.85.