Comex copper drifts lower

copper futures settled lower in extremely volatile trading conditions on Tuesday following news that Chile's Escondida requested formal talks with its disgruntled workers to negotiate a new contract, sources said.
Benchmark September copper settled 2.50 cents lower at $3.5745 a lb on the New York Mercantile Exchange's COMEX division, after dealing between $3.5310 and $3.68.
Spot July lost 3.40 cents at the close to $3.6805. COMEX final copper volume was estimated at a moderate 9,000 lots, in step with Monday's quiet 8,304 lots.
Chile's Escondida, the world's biggest copper mine, said on Tuesday the company has formally requested talks with workers to reach an agreement before their current contract expires on August 2.
In addition, the company said a recent worker slowdown earlier this month to protest the company's small wage increase offer in negotiations had not affected production. Supply concerns have been a major catalyst to the market's rally to all-time highs in early May, but some analysts now believe these once bullish fundamentals are beginning to turn slightly more bearish.
"We have to believe that after a rather impressive rally off the mid-June lows, the upside momentum has stalled in the metals, as funds take stock of what to do next. Moreover, the complex is starting to focus - for a change - on its own fundamentals, and here the news, on balance, is turning slightly more bearish," said Edward Meir, metals analyst with Man Financial.
On Monday, copper tumbled 3 percent amid speculative liquidation tied to a strike settlement at Grupo Mexico's massive Cananea copper mine in northern Mexico.
The newly reopened mine is expected to reach full output within the next week, said Juan Rebolledo, head of international affairs, after estimates showed the company lost 16,500 tonnes of production of copper and 7,500 tonnes of copper cathode production during the six-week strike.
Meir believed the settlement of the strike at Cananea may have implications for a similar settlement at the larger La Caridad mine. Also weighing on sentiment Tuesday was the latest monthly report from the International Copper Study Group (ICSG), which showed world refined copper production exceeded consumption by 77,000 tonnes in the first four months of 2006, against a deficit of 126,000 tonnes in the same year-ago period.
"The ongoing monthly ICSG data is proof that these price levels in the market are not sustainable," said one market analyst. Meanwhile, Chinese annual growth surged to 11.3 percent in the second quarter, charging ahead at its fastest pace of growth since the first quarter of 1995.
London Metal Exchange copper warehouse stocks fell 1,575 tonnes to 92,275 tonnes - down by around 30 percent since their latest peak in mid-March. COMEX inventories were down 282 to 7,186 tons in Monday's data. LME three-months copper closed at $7,800 a tonne, down from its intra-day high at $7,960, but up $50 from Monday's kerb close.