Jul 28, 2011 (Dow Jones Commodities News via Comtex) -- --BHP Billiton declares force majeure at top mine Escondida as strike continues.
--Stronger dollar, U.S. debt worries cap gains.
--U.S. debt limit vote planned in House of Representatives.
By Matt Day
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Copper futures edged higher Thursday, supported by lost production at the world's largest copper mine, but under pressure from a stronger dollar and investor caution as U.S. debt-limit talks continue.
The most actively traded contract, for September delivery, was recently up 0.85 cent, or 0.2%, at $4.455 a pound on the Comex division of the New York Mercantile Exchange.
Chile's Escondida copper mine, controlled by BHP Billiton Ltd. (BHP, BHP.AU), late Wednesday invoked force majeure on its copper shipments, allowing the company to suspend its contracts to supply consumers because of events outside its control. Workers at the mine walked off the job Thursday to protest what they said was a failure to meet the terms of their contract. BHP has declined an offer of government mediation, and contends that the strike is illegal.
"The company's refusal to negotiate with the union until they return to work suggests the standoff could drag on," Barclays Capital analyst Gayle Berry said in a note. "The market has very little slack to deal with a prolonged strike," adding that copper prices may be due for a larger boost after the current set of debt worries ease.
The copper market has been supported in recent months by the view that mine production growth would fail to keep up with rising demand this year.
But futures have paused near $4.40 a pound during the last three weeks, as big-picture economic worries gave traders pause.
"Although the Escondida news has given copper a little bit of background support, it seems that the U.S. debt negotiations are continuing to cast a shadow over the market," Standard Bank analyst Leon Westgate said in a research note.
Investors continued to be cautious toward risky assets such as commodities as U.S. leaders debate a plan to raise the country's borrowing limit ahead of the Treasury Department's Tuesday deadline. The House of Representatives was set to vote on a Republican-proposed bill Thursday, though it faces uncertain prospects in the Democratic-controlled Senate.
The copper market hasn't been severely shaken by debt worries, but the move to cash by investors looking for a refuge from debt in Europe and the U.S. has limited copper's gains this month.
Strength in the dollar also weighed on copper Thursday. A rising dollar can dampen the appeal of dollar-denominated commodities by making them 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 74.345, up from 74.087 late Wednesday in New York.