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BASE METALS: Copper Slumps On Demand Worries, Thin Trade

iconApr 26, 2011 09:22
Source:SMM

NEW YORK, Apr 25, 2011 (Dow Jones Commodities News via Comtex) -- Copper futures retreated Monday as concerns about further Chinese monetary tightening and higher crude oil prices sent traders to cash in recent gains.

The most actively traded copper contract, for May delivery, settled down 9.7 cents, or 2.2%, at $4.3030 per pound on the Comex division of the New York Mercantile Exchange.

The thinly traded April delivery contract ended down 9.7 cents, or 2.2%, at $4.3010 per pound. The April contract's last trading day is Wednesday.

Copper futures erased much of last week's gains Monday, as thin trading volume and worries about global demand saw traders book recent profits.

"This is going to be a traders' week with wild swings, but we're not really going anywhere," said Larry Young, president of Covenant Trading LLC., adding that prices are likely to remain range-bound between $4.252 and $4.403.

Concerns that China will tighten monetary policy further pushed futures prices lower earlier in the trading session. China, the world's largest copper consumer, has struggled to curb rising inflation as booming commodity prices pushed up the price of food, fuel and other basic necessities.

Chinese authorities have raised domestic banks' reserve requirement ratios six times since last October to 20.5%, a cumulative increase of 300 basis points, compared with 150 basis points in the prior year. Some fear that interest rate hikes will soon follow.

The policies aim to cool inflation by restricting credit availability and slowing economic activity and hence demand for metals such as copper, which is used in commercial and residential construction as well as in electrical infrastructure.

Higher oil prices also muted trader expectations of future copper demand. As energy prices rise, consumers are forced to divert more funds to fuel costs, leaving less cash to spend on copper-containing items such as iPods, air-conditioners and copper pipe and electrical wire for home renovations. The most actively-traded oil contract, for May delivery, touched a high of $113.48 a barrel.

"The idea that these high energy prices are going to retard growth is the principal driving factor behind copper prices," said Sterling Smith, an analyst at Country Hedging.

Low trading volume exaggerated a sharp decline in copper prices shortly after 10 a.m., with the most-active contract tumbling around 4 cents over the course of 6 minutes. The London Metal Exchange, a key hub of copper trading, is closed in observance of the Easter Monday holiday and many U.S.-based copper traders have taken an extended break.

The declines came shortly after the Commerce Department reported a rise in sales of new homes in March, from an all-time low a month earlier. Sales grew 11.1% on a monthly basis to a seasonally adjusted 300,000, outpacing the 287,000 forecast by economists.

The upbeat news, however, failed to stem sharp losses in copper prices.

"There wasn't anything particularly shocking in those numbers, but the London markets are closed today so trade is a little bit thin and it's exaggerating any moves we have," Smith said.

Copper settlements (ranges include electronic and pit trading):
May $4.3030; down 9.70 cents; Range $4.2600-$4.4005
Jul $4.3235; down 9.55 cents; Range $4.2800-$4.4195


 

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