Copper Hits Three-Month Low

5. February. 2010
OnlinWallStreetJournal

Strength in the dollar combined with lurking worries about Chinese demand sent copper futures to a three-month low Thursday.

Copper for February delivery fell 9.25 cents, or 3.1%, to $2.8755 on the Comex division of the New York Mercantile Exchange.

The dollar's continuing gains were in the forefront, as the euro hit a a seven-month low against the dollar on festering concerns about Greek sovereign debt. A stronger dollar hurts commodities by making them more expensive for holders of other currencies.

Weaker stock markets also weighed, since that is seen as a sign of economic nervousness and thus concerns about the strength of demand for commodities. Shares fell on continuing worries about European deficits as well as an unexpected rise in U.S. weekly jobless claims and a small-than-forecasted gain in U.S productivity.

There also appears to be a slowing in Chinese demand ahead of the approaching seven-day Chinese New Year holiday, said Frank Lesh, broker and futures analyst with FuturePath Trading. However, traders will have to wait until after the holidays to ascertain whether this is due to the holiday or signals something more significant, such as declining consumption, he added.

Uncertainty over China continues to be a worry for the copper market, even though "the stronger dollar, weak equity sessions, and hot-and-cold U.S. macro readings have alternatively acted as primary bearish catalysts in the metals complex of late," said Edward Meir, analyst with MF Global.

Markets collectively anticipate monetary tightening in China. Mr. Meir also cited a downgrade of two midsize Chinese banks earlier this week by Fitch. Still, he said, China isn't likely to announce any major economic policy announcements ahead of the approaching holidays.

"However, markets are clearly on edge, as the usual bearish factors have now been joined by a new variable, that being a 'credit watch' hovering over China with potentially far-reaching implications," he said.

Still, analyst with Barclays cited some encouraging signs for base metals, including a slowing of recent deliveries into London Metal Exchange warehouses. Inventories of copper stored in London Metal Exchange warehouses fell 1,050 metric tons Thursday, leaving them at 539,425 tons.