BASE METALS: NY Copper Falls From 3-Month High On Strong Dollar

Jul 27, 2011 (Dow Jones Commodities News via Comtex) -- --Market participants take cues from currency markets in thin trading

--Unexpected drop in U.S. durable goods orders also weighs

--Strike continues at top mine Escondida as BHP declines government mediation offer

By Matt Day
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Copper futures eased Wednesday as traders viewed a strengthening dollar and a weaker-than-expected reading on the U.S. manufacturing sector as an opportunity to cash out from the previous day's three-month highs.

The most actively traded contract, for September delivery, was recently 3.05 cents, or 0.7%, lower, at $4.4475 a pound on the Comex division of the New York Mercantile Exchange. Futures Tuesday climbed to their highest levels since April.

The dollar rose against some major currencies Wednesday, putting pressure on copper and providing an excuse for traders to cash out to profit from Tuesday's highs. A stronger dollar can weigh on copper and other dollar-denominated commodities by making the futures more expensive for buyers using other currencies.

The ICE U.S. Dollar Index, which tracks the currency against those of some major U.S. trading partners, was recently at 73.691, up from 73.514 late Tuesday in New York.

The industrial metal also came under pressure Wednesday as orders for durable goods in the U.S. unexpectedly fell in June, another sign that manufacturing growth in the world's second-largest copper consuming nation has stalled. Manufacturers' orders for durables fell 2.1% last month, the Commerce Department said, the second decline in three months and short of analysts expectations for a rise of 0.4%.

Copper is sensitive to the growth outlook because of its widespread application in manufacturing and construction. The metal is found in electrical wiring, plumbing, automobiles and appliances, among other uses.

Copper traders have brushed off much of the worry about debt talks in Europe and the U.S., holding firm largely to the view that China's efforts to cool it's overheating economy wouldn't upset growth in metals demand. But China, by far the world's largest copper consumer, has shown strong growth and industrial activity despite Beijing's efforts to limit bank lending and clamp down on inflation.

Sentiment in the market has also been boosted by supply disruptions, as a series of output shortfalls amid severe weather and labor strikes in Chile threatened to squeeze an already tight market. Copper has been supported for much of the last year by the view that mine production growth will fail to keep up with rising demand.

BHP Billiton Ltd. (BHP, BHP.AU) Tuesday rejected an offer of government mediation to end a strike at the world's largest copper mine. Workers at Chile's Escondida mine put down their tools Thursday to protest what they said were unmet contract demands. The miners' union has rejected BHP's offer of a bonus, voting to strike.

"The market is clearly concerned that the strike could now spread to other producers after the company refused a government-endorsed union invitation for talks," MF Global analyst Edward Meir said in a note.

The mine, which supplies about 7% of the world's copper, according to Barclays Capital, stands to lose about 3,000 tons of production for every day workers are on strike.