METALS-Caution about upcoming US-China talks drags copper down

By Polina Devitt

LONDON, May 7 (Reuters) - Copper prices fell in London on Wednesday on subdued expectations an upcoming meeting between U.S. and Chinese officials will yield an immediate outcome after months of escalating trade tensions.

Benchmark three-month copper CMCU3 on the London Metal Exchange (LME) shed 1.2% to $9,420 a metric ton by 1615 GMT after hitting $9,582 for its highest since April 3 in early Asian trading hours.

U.S. and Chinese representatives will meet this weekend for talks that could be the first step toward resolving a trade war which pushed import duties between the world's two largest economies well above 100%.

"Any sign of de-escalation would be helpful, and the talks are a gesture for the market to feel relatively more calm. However, just making statements, without those tariff numbers going down, doesn't really help," said Nitesh Shah, commodity strategist at WisdomTree.

"We are still in a fairly noisy period with question marks on where the trade policies would end up."

While trade tariffs inflate risks for global demand for growth-dependent metals in the longer term, the trade spat and a separate copper-specific investigation in the U.S. are tightening the short-term availability of copper on the Shanghai Futures Exchange (SHFE) and in the LME system.

The premium of the COMEX copper futures against the LME prices LMECMXCUc3 has been elevated for several months as Washington continues its probe on whether to impose new copper import tariffs.

As some traders diverted copper from traditional Asian consumer markets to the U.S. to take advantage of this premium, inventories in COMEX-owned warehouses HG-STX-COMEX have risen 61% since end-March.

Amid elevated supplies to the U.S., inventories in the LME-registered warehouses MCUSTX-TOTAL have been seeing continuing outflows and stocks in the SHFE-monitored warehouses CU-STX-SGH saw a sharp decline, indicating robust demand in China.

The Yangshan copper premium SMM-CUYP-CN, which reflects demand for copper imported into China, is at $100 per ton, the highest since December 2023. It has risen 43% since end-March.

Traders were also cautious ahead of a Federal Reserve interest rate decision later in the day. Markets are implying nearly no chance of a rate change. MKTS/GLOB

LME aluminium CMAL3 lost 1.8% to $2,382.50 a ton, zinc CMZN3 fell 0.6% to $2,617.50, lead CMPB3 rose 1.8% to $1,959, and tin CMSN3 and nickel CMNI3 were down 0.9% at $31,565 and $15,560, respectively.

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