NEW YORK, Mar 28, 2011 (Dow Jones Commodities News via Comtex) -- Copper futures faltered Monday amid growing expectations that tighter monetary policy will end up crimping demand for the metal. The most actively traded contract, for May delivery, fell 6.9 cents, or 1.6%, to settle at $4.35 a pound on the Comex division of the New York Mercantile Exchange.
"There was a whole negative tone to commodities," said Bill O'Neill, a principal with Logic Advisors. Concerns about higher interest rates sapping investor demand for commodities like copper combined with continued worries about Europe's sovereign debt crisis and the aftermath of Japan's earthquake and tsunami.
Copper was under pressure as European Central Bank President Jean-Claude Trichet reiterated his anti-inflationary bias and fed expectations of higher euro zone interest rates.
That came on the heels of comments Friday from Federal Reserve Bank of Philadelphia President Charles Plosser--a known inflation hawk--who said the Fed will need to tighten monetary policy in the "not-too-distant future." Meanwhile, St. Louis Fed Chief James Bullard told an audience in France that the Fed should examine carefully whether to continue its current quantitative policy, claiming that the economy is looking pretty good.
A People's Bank of China statement also reiterated it's the need for adequate liquidity, reasonable money supply levels and stable prices.
Loose monetary policy has been one of the boons to copper prices, helping send them to record highs above $4.60 last month as the recovering global economy also increased demand for the metal, widely used in construction and manufacturing.
Thoughts that some of this liquidity may be sponged up are now pressuring copper prices even as some worries about demand also grow.
Concerns have resurfaced about Europe's debt-laden periphery countries in recent days. And Japan's economy continues to remain hobbled by the effects of the devastating earthquake and tsunami, with fears about a delayed recovery as radiation continued to leak from a damaged nuclear facility.
"Ongoing radiation problems in Japan, political uncertainty in Europe and hawkish comments from various Fed members ... have all combined to weigh on base metals prices," Standard Bank analyst Leon Westgate said in a note to clients.
Meanwhile, rising inventory levels were also pressuring copper prices.
Inventories of copper stored in London Metal Exchange warehouses rose 625 metric tons Monday, leaving them at 439,900. The most recent Comex inventory data, released late Friday afternoon, were up 97 short tons at 84,725 short tons.
"That's a concern also," O'Neill said.
Copper settlements (ranges include electronic and pit trading):
May $4.3500; down 6.90 cents; Range $4.3315-$4.4355
Jul $4.3670; down 6.85 cents; Range $4.3485-$4.4500