Copper falls as dollar firms on euro zone debt worries

Copper eased on Friday, reversing the previous session's gains, as concerns about a wider debt crisis in Europe pushed up the dollar to weigh on base metals.

Three-month copper on the London Metal Exchange fell to $8,165 a tonne by 1136 GMT, versus Thursday's close at $8,340. The red metal, used in power and construction, earlier hit a low at $8,150.

"It's very much about risk sentiment in general ... and with the euro down, that's largely what is driving base metals down," Christin Tuxen, analyst at Danske said. "We also have equities markets in the red in Europe, that's hurting risk sentiment."

The euro fell to a fresh two-month low against a resurgent dollar as peripheral euro zone debt worries intensified and European shares were also down.

A stronger dollar makes commodities such as metals more expensive for holders of other currencies.

Traders also pointed to copper stocks in LME warehouses, which have fallen more than 30 per cent since mid-February. Latest LME data however, showed they rose 450 tonnes to 357,000 tonnes, the first build in nearly three weeks.

In related news, the Shanghai Futures Exchange said it will raise margin requirements on its products, and widen daily price move limits, on its contracts from next week.

It said margin requirements on copper, aluminium, steel wire rod, gold and fuel oil will be increased to 10 percent, effective at the close of business on November 29. Margins on zinc and steel rebar will rise to 12 per cent.

The supply side remained a focus for investors, with many analysts forecasting a large deficit for the copper market going forward.

Earlier this week, the International Copper Study Group said world refined copper consumption exceeded production by 363,000 tonnes between January and August this year, compared with a deficit of 47,000 tonnes in the same year-ago period.

Global diversified miner Rio Tinto warned on Friday that weak copper output would continue into next year before recovering in 2012. Copper output would fall 18 per cent to 661,000 tonnes this year.

Also on the supply side, workers at Chile's giant Collahuasi copper mine entered their last day to accept a signing bonus and end a three-week strike.

The company, owned by Xstrata and Anglo American, has persuaded 220 workers to abandon the strike so far.

Concerns about copper supplies in the near term have pushed the premium for cash metal over the three-month contract to about $50, its highest since October 2008.

Investors are also keeping an eye on a dominant position controlling between 50-80 per cent of cash warrants for both copper and nickel, subject to LME lending guidance.

Among other base metals, aluminium traded at $2,271 versus $2,281.

Japanese shipments of aluminium products rose 5.8 per cent in October, for an 11th straight month of year-on-year gains, as high temperatures boosted demand for cans and exports continued to grow.

Zinc fell more than 4 per cent to $2,108 a tonne versus Thursday's close of $2,200 a tonne.

Battery material lead traded at $2,282 from Thursday's close of $2,331 a tonne. Tin was at $23,800 versus $24,300 while nickel was at $22,365 from $22,800.

"On balance, weaker equities, a stronger dollar and continuing concerns over EU debt, plus generally weak chart pictures, suggest the metals may retest underlying support levels again," William Adams, analyst at basemetals.com, said in a note.