Comex Copper Surges On EU Deal Relief

Oct 27, 2011 NEW YORK (Dow Jones)--Copper futures surged to five-week highs Thursday as investors bet that the demand outlook for the industrial metal would brighten after European leaders agreed on a plan designed to stave off a credit crunch in the region.

The most actively traded copper contract, for December delivery, rose 20.20 cents, or 5.8%, to settle at $3.692 a pound on the Comex division of the New York Mercantile Exchange, the highest settlement price since Sept. 21.

The industrial metal has climbed by 14% so far this week, largely on the view that progress in preventing a financial crisis in the euro zone means demand for the metal won't crumble as much as feared.

Growth-sensitive assets such as stocks and crude oil rose sharply after a closely watched summit of euro-zone leaders resulted in the outline of a plan to tackle the region's debt crisis. The agreement is designed to reduce Greece's debt load, boost the firepower of the European Union bailout fund, and cushion the cash reserves of European banks.

Speculators "had built up a pretty good short position" in copper, said Sterling Smith, an analyst with Country Hedging, referring to bets that prices would fall. Some money managers were reversing those positions after the EU news, he said.

Copper's gains also were fueled by a sharp drop in the U.S. Dollar as investors dumped the safe-harbor currency. A weaker U.S. currency can boost dollar-denominated commodities by making them cheaper for buyers using other currencies.

Copper had been one of the hardest-hit assets as worries mounted in recent months that Europe may be sliding toward a debt-sparked financial crisis. Investors were concerned that the strains in the continent's financial system could filter to the industrial economy, potentially constraining economic growth and cutting demand for metals. Some worried that China, by far the world's largest copper consumer, may also feel the effects of a slowdown in the developed world.

A report released Thursday showed economic growth in the U.S. accelerated in the third quarter as consumers and businesses boosted spending, easing worries that the world's largest economy was slipping into a recession.

Copper is sensitive to the growth outlook because of its widespread use in construction and manufacturing.

Copper settlements (ranges include electronic and pit trading):
Oct $3.6890; up 20.10 cents; Range $3.6875-$3.6890
Dec $3.6920; up 20.20 cents; Range $3.4980-$3.7030