RTRS:METALS-Copper drops to 4-1/2 month low on debt crisis fears
* Euro drops to 21-month low vs dollar
* Nickel at 2012 low, copper down 9.5 pct so far in May
* U.S. Richmond Fed manufacturing index for May at 1400 GMT
By Harpreet Bhal
LONDON, May 23 (Reuters) - Copper fell to a 4-1/2-month low
on Wednesday as the euro dropped ahead of a European Union
summit that investors feared may not come up with sufficient
measures to tackle the euro zone debt crisis and shore up the
faltering economy.
Three-month copper on the London Metal Exchange fell
to $7,598 a tonne at 0926 GMT, down 1.8 percent from a close of
$7,739 on Tuesday.
The metal, used in power and construction industries,
earlier dropped to its lowest level since early January at
$7,590 a tonne, and is trading more than 9 percent lower so far
this month.
Investors are wary that a failure to tackle the euro zone's
debt crisis would hit global demand for industrial metals just
as China's growth is slowing and a U.S. recovery is fragile.
They shunned assets perceived as risky on concerns about the
crisis, with the euro falling to a 21-month low against a
broadly stronger dollar. A strong dollar makes commodities
priced in the U.S. unit more expensive for holders of other
currencies.
An informal European leaders summit later on Wednesday is
expected to discuss growth-boosting measures and the idea of a
joint euro-zone bond.
But while new French President Francois Hollande supports
the proposal for a joint euro-zone bond, Germany's long-standing
opposition is unlikely to change, raising the risk of political
deadlock in the euro zone.
"There is risk aversion in the market and all eyes are on
the summit where the rift between France and Germany seems to be
widening," Andrey Kryuchenkov, an analyst at VTB said.
"People are piling into the U.S. dollar and that is putting
pressure on base metals. Copper is looking to the downside."
Investors are also concerned about sluggish demand from top
consumer China, where buying has been slow to pick up so far
this year. Analysts noted that many Chinese investors were
sticking to safe plays because of uncertainties in copper's
demand outlook and global economics.
China's consumption accounts for 40 percent of global copper
demand.
"There are more reasons to stay wary than to cheer. All
signs point to Chinese copper demand being sluggish, with
downstream orders still weak. China's economy is slowing, the
euro zone crisis remains an issue, while a U.S. recovery is
still uncertain," said CIFCO analyst Zhou Jie.
Even as the world looks to China for support there is
little sign that Beijing - faced with its own problems of
inflation and high levels of local government debt - is ready to
combat slowing growth with aggressive policies.
The World Bank cut its economic growth forecast for China
this year to 8.2 percent on Wednesday and urged the country to
rely on easier fiscal policy that boosts consumption rather than
state investment to lift activity.
COPPER STOCKS RISE
The latest data showed copper stocks in LME-registered
warehouses rose by 1,725 tonnes to 225,700, with net inflows
mostly into warehouses in South Korea, where traders suspect
Chinese merchants have booked around 110,000 tonnes for
delivery.
Metals warehouses in China are said to be so full that
workers are starting to stockpile iron ore in granaries and
copper in car parks.
"We know that Chinese bonded warehouse stocks are near
record highs and when domestic stockpiles start shrinking only
then you will see shrinkage in LME stockpiles in Asian
locations," Kryuchenkov said.
Hit by the broad slide in base metals prices, nickel
touched a 2012 low at $16,750 a tonne, its lowest level since
early December 2011. It later recovered slightly to trade at
$16,800 from Tuesday's close of $16,900.
Aluminium slipped to $2,017.25 from a close of
$2,029 on Tuesday
Norsk Hydro will shut its 180,000-tonnes-per-year
aluminium smelter in Australia due to low metals prices and a
dismal economic outlook, the latest producer to take steps to
stem losses.
Lead fell to $1,930 from $1,965, zinc
slipped to $1,875 from $1,911, while tin fell to $19,392
from Tuesday's close of $19,705.
