LONDON -- Copper lost 6 percent to reverse earlier gains on Monday after a source said China's State Reserves Bureau (SRB) could have suspended planned copper purchases and rising stockpiles increased worries about demand.
Copper for three month delivery on the London Metal Exchange fell to a low of $3,196 a tonne from $3,400 at the close on Friday but was traded at $3,210 in rings.
"We previously had a plan to build up copper reserves but it now seems we've had to suspend it," an official with knowledge of the Chinese government's plans said.
"It's because of the price," he said, without elaborating.
Prices of copper, the metal used in power and construction have fallen about 60 percent since a record high of $8,940 in July 2008. However, they have risen about 4 percent so far this year, on speculative buying due to index re-weighting.
"There have been reports that China is set to discard plans to buy copper for state reserves and that saw copper prices come back down," Leon Westgate, an analyst at Standard Bank, said.
Tracking copper and weighed by demand worries, nickel shed more than 15 percent to a near two-week low of $10,290 from $12,175, and has now fallen around 80 percent since its all-time high of $51,800 in May 2007. It traded at $10,400 in LME rings.
Lead fell 5.8 percent to a low of $1,135.50 from $1,205 but was traded at $1,140.50.
"Investors were largely covering positions both ahead of index re-weighting but also because of the speculation on whether SRB will be re-stocking and by how much," Gayle Berry, an analyst at Barclays Capital, said.
Copper stocks rose 5,925 tonnes to 369,500 tonnes -- the highest level in five years.
"Probably the most uncertain factor overhanging base metals in the near term is whether China's SRB will step in and buy 'cheap' metals for state stocks," UBS analysts said in a note.
"(With) LME stocks increasing quickly on an almost daily basis and with global economic growth still decelerating ... calling the bottom in markets is tricky."
The DJ-AIG annually recalculates the weightings for individual commodities in its index. The latest reshuffle started on Jan. 9 and goes until Jan. 15.
Reweighting in the S&P GSCI index is also under way and analysts at J.P. Morgan estimate the rebalancing will result in an inflow of $634 million into COMEX copper.
China's State Reserves Bureau, which has already bought aluminium and indium, is scheduled to meet representatives of five or six large smelters for a zinc bidding round, part of its plan to buy base metals to help loss-making smelters and boost consumption, industry sources said on Monday.
Zinc was traded at $1,241 from $1,295, while tin was last bid at $11,500 a tonne.
In other markets, European shares fell in early trade to track a sell-off on Wall Street on Friday, while U.S. crude slipped to under $39 a barrel.
Aluminium fell $56 to $1,514 compared with a low of $1,512, from $1,570 on Friday. The metal used in transport and packaging has come under pressure in recent weeks on news of falling car sales data from auto makers.
LME stocks jumped 15,650 tonnes to 2.42 million tonnes -- its highest level since September 1994 and a reminder of weaker demand for the metal.
This week investors will scrutinise Chinese and U.S. trade numbers, Alcoa Inc's results, Rio Tinto production numbers, and U.S. mortgage, retail sales, producer and consumer prices, industrial production and consumer sentiment data.
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