METALS-Copper sinks as inflation fears eclipse South American political risk

(Updates prices, China to curb high prices)

LONDON, May 19 (Reuters) - Copper prices fell on Wednesday as rising inflation pushed investors into a risk-off sentiment, offsetting the impact of potential supply disruptions in the top producing region of South America.

Benchmark three-month copper on the London Metal Exchange (LME) shed 3% to $10,101 a tonne by 1311 GMT.

The metal, widely used in the power and construction industries, was on track for its biggest daily fall since February. Last week, copper hit a record of $10,747.50 a tonne and has jumped 32% so far this year.

“A lot of good news has already been priced into copper,” said Julius Baer analyst Carsten Menke, citing the muted impact of potential for higher royalties and strikes in top producer Chile and a socialist party leading polls in Peru have had on prices.

He said the metal’s supply and demand dynamics were positive relative to other metals, making copper less vulnerable to an extensive price correction from record highs.

News that China plans to strengthen management of both supply and demand sides to curb “unreasonable” increases in commodity prices and prevent the pass-through to consumers, also dragged metals lower.

MARKETS: Global stocks slipped and the dollar firmed as a threat of unwanted inflation had investors shy away from assets seen as vulnerable to any removal of monetary stimulus.

“SUPERCYCLE”: Citi expects copper prices to trade above $12,000 a tonne over the 3-4 months, amid a “supercycle” fuelled by the bank’s expectation of strong producer margins over the next five years.

PREMIUMS: The Yangshan copper premium SMM-CUYP-CN, which reflects Chinese demand for imported metal, rose for the first time since February on Monday to $38.50 a tonne, rebounding from a more than five-year low of $37 a tonne hit on Friday.

SPREADS: LME copper sank into a deep contango, indicating plentiful supply.

The discount of LME cash copper to the three-month contract CMCU0-3 swung to $28.75 a tonne, the widest since June 2020, compared to a premium of $30 a tonne last month.

PRICES: LME aluminium fell 1.9% to $2,431 a tonne, zinc shed 2.7% to $2,976, lead eased 1.5% to $2,195, tin lost 1.6% to $29,979, while nickel was 3% lower at $17,405.

Reporting by Zandi Shabalala, additional reporting by Mai Nguyen; Editing by David Evans and Louise Heavens