Copper caught between Chinese restocking and rising inventories

By Eric Onstad

Copper prices dipped on Monday, restrained by climbing inventories and a weak global economic backdrop that was partly offset by Chinese restocking and a weaker dollar.

Benchmark three-month copper HG1! on the London Metal Exchange was down 0.1% at $9,981 a metric ton by 1610 GMT after edging up 0.5% on Friday.

LME copper has gained 14% this year but has retreated from last week's 15-month peak of $10,192.50.

"I'm a bit puzzled by the strength we're seeing in prices at the moment," said Carsten Menke, analyst at Julius Baer in Zurich. "Globally, the economy is softening rather than maintaining strength, no matter whether you look at the U.S. or China."

Copper inventories in warehouses certified by the Shanghai Futures Exchange (CU-STX-SGH) climbed by 12.5% to the highest since early June at 105,814 tons, weekly data showed on Friday.

LME stocks have jumped 56% over the past three months.

Price support came from restocking by industrial consumers in China ahead of the National Day holiday from October 1 to October 8, said analysts at broker Minmetals Futures.

The most traded copper contract on the Shanghai Futures Exchange HG1! closed daytime trading up 0.4% at 80,190 yuan ($11,272.46) a ton.

Another positive driver was a slightly weaker dollar DXY, making dollar-priced commodities less expensive for buyers using other currencies.

Also bolstering copper prices was a production suspension at Freeport Indonesia's Grasberg copper mine after an incident in early September.

LME zinc ZNC1! rose 0.3% to $2,898.50 a ton, partly owing to short-covering in China, broker Marex said in a note.

Also helping zinc was cash LME zinc's premium to the three-month contract (CMZN0-3), which has climbed to $51 a ton for its highest since October last year as inventories continued to erode.

LME zinc stocks (MZNSTX-TOTAL) fell to their lowest since May 23 at 48,825 tons, data showed on Monday, having slumped 80% this year.

Among other LME metals, aluminium ALI1! shed 0.9% to $2,648 a ton, nickel NICKEL1! slipped 0.4% to $15,215, and tin FTIN1! fell 0.2% to $34,105. Lead LEAD1! firmed by 0.2% to $2,000.

($1 = 7.1138 Chinese yuan renminbi)