METALS-Fading optimism over US-China tariffs pause drives copper lower

By Polina Devitt

LONDON, May 15 (Reuters) - Copper fell on Thursday as optimism about a 90-day pause agreed by Beijing and Washington on most of their retaliatory tariffs started to fade and concerns about longer-term demand prospects returned.

Benchmark three-month copper CMCU3 on the London Metal Exchange (LME) was down 0.2% to $9,587.50 a metric ton by 1617 GMT.

The metal, used in power and construction, had been up in the previous five sessions. It touched $9,664 on Wednesday, the highest price since April 2.

"Industrial metals have woken up to the fact that a lot of damage has already been done, both to the U.S. but especially the Chinese economy, and it raises renewed concerns about the demand outlook going forward," said Ole Hansen, head of commodity strategy at Saxo Bank.

"We have to remember it's a trade tariff truce and not a final deal with many potential obstacles still lurking."

Analysts at Citi said in a note that average copper prices were expected to fall to $8,800 in the third quarter from $9,300 in the current quarter as front-loading of trade and manufacturing spurred by the 90-day reprieve would fade.

"Trade tariffs remain notably higher than pre-April, even with recent and potential further bilateral deals, and we expect to see the impact on growth and payback for front-loaded goods trade in physical metals consumption by the third quarter," the Citi analysts added.

Copper prices outside the U.S. are for now supported by U.S. demand for supplies HG-STX-COMEX. The premium on COMEX copper futures over the LME benchmark LMECMXCUc3 is elevated due to Washington's ongoing investigation into potential new import tariffs on the metal.

An announcement of tariff implementation is likely to trigger an unwind through drawdown of the U.S. domestic copper inventory, driving a temporary collapse in U.S. import demand, Citi added.

Aluminium CMAL3 fell 1.1% to $2,499.50 a ton. The short-covering which was supporting the metal on Wednesday has worn off, shifting the focus back to slowing economies, a metals trader said.

Weakness in aluminium demand linked to trade tensions will likely weigh on prices this year, but a longstanding cap on Chinese output could limit losses, analysts said.

Helping to end the short-covering bid, which had been supporting aluminium, zinc and nickel earlier this week, appetite from top metals consumer China eased due to elevated prices, said Alastair Munro, senior base metals strategist at broker Marex.

Zinc CMZN3 lost 1.4% to $2,726.50, lead CMPB3 added 0.4% to $2,002, tin CMSN3 rose 0.6% to $32,950 and nickel CMNI3 was down 0.5% at $15,785.