Base metals fall on weak yuan, LME aluminium discount widens

Most nonferrous metals fell on Tuesday as a weaker yuan reduced the purchasing power of Chinese buyers, while high inventories and weak demand pressured aluminium prices.

Three-month copper on the London Metal Exchange (LME) fell 1.3% to $9,773 per metric ton by 0806 GMT, while the most-traded July copper contract on the Shanghai Futures Exchange (SHFE) dropped 2.3% to 79,870 yuan ($11,010.17) a ton.

China's yuan fell against the U.S. dollar to its lowest in nearly seven months, as investors returned from a long weekend break to play catch-up with broad greenback strength in overseas markets.

The LME cash copper contract on Monday traded at a $133.14-a-ton discount to the three-month contract, the biggest discount since May 8, indicating that there was no tightness in nearby supply. <CMCU0-3>

LME aluminium eased 0.9% to $2,549.50 a ton, zinc fell 2% to $2,793.50, lead dropped 1.2% to $2,180, tin edged down 0.1% at $31,965, and nickel declined 0.1% to $17,875.

The discount of the LME cash aluminium contract to the three-month contract <CMAL0-3> widened to $62.44 a ton, the biggest discount since August 2007, after inventories more than doubled in just a month to 1.1 million tons. <MALSTX-TOTAL>

"It's a combination of the Rusal deliveries, weak physical demand due to high prices and most probably a pickup in shorts since prices fell recently," said a trader, referring to Russian aluminium flows into LME warehouses in recent months on lucrative rent deals.

However, the share of Russian-origin aluminium has dropped lately, while the share of Indian origin has risen.

SHFE aluminium shed 1.9% to 20,905 yuan a ton, nickel dropped 2.4% to 139,610 yuan, zinc declined 2.1% to 23,695 yuan, lead fell 1% to 18,705 yuan and tin lost 0.9% to 264,050 yuan.