Copper Drops Most in a Week as Rallying Dollar Reduces Demand

LONDON, June 15 -- Copper futures fell by the most in a week after a strengthening dollar reduced demand from traders who buy commodities as a hedge against inflation.

    The U.S. Dollar Index, a six-currency gauge of the greenback's value, rose as much as 1.4 percent, heading for its third gain this week. The S&P GSCI Index of 24 raw materials fell as much as 2.2 percent, with the sharpest losses in lead, cocoa and zinc. Commodities often move inversely to the dollar as traders use raw materials as alternative assets.

    "Some of the buying is coming out of the commodities today because of the stronger dollar and that's hurting copper as well," said Patrick Chidley, a Barnard Jacobs Mellet LLC analyst in Stamford, Connecticut.

    Copper futures for July delivery fell 7.15 cents, or 2.9 percent, to $2.3735 a pound on the New York Mercantile Exchange's Comex division, the steepest drop for a most-active contract since June 3. The most-active contract still gained 3.9 percent for the week, the fourth straight advance.

    Metal prices "are following the general direction of commodities," said Randy North, a London-based RBC Capital Markets trader. "I don't think it's anything to be alarmed about yet."

    Copper has gained this month on signs of an improving global economic outlook and on rising demand in China, the world's biggest metals user. Copper has climbed 8 percent in June, and is up 68 percent this year.

    Consumer attitudes on the U.S. economy improved in June for a fourth straight month, a private survey showed today. Copper and copper-products imports rose to a record 422,666 metric tons last month, China's customs agency reported yesterday.

    Revived Prices

    "Expectations of an economic recovery alongside increasing risk appetite have propelled a commodity-price revival," Barclays Capital analysts led by Gayle Berry in London said yesterday in a report. "There remain question marks regarding the sustainability in some of these markets," especially in industrial metals, she said.

    Copper stockpiles in warehouses monitored by the London Metal Exchange dropped 2,900 tons, or 1 percent, to 290,275 tons today. Copper inventories reported by the Shanghai Futures Exchange jumped 15,167 tons, or 33 percent, to 60,647 tons this week, the most since March 20, 2008.

    "We've seen buying in China, but we don't know yet what they will do with their stockpiles," Barnard Jacobs Mellet's Chidley said.

    Copper for delivery in three months dropped $141, or 2.6 percent, to $5,235 a metric ton ($2.37 a pound) on the LME.

    Relative Strength

    The 14-day relative-strength index for copper traded in London yesterday climbed to 72.8, the highest since April 17. Readings above 70 typically signal a price decline, while readings below 30 indicate a gain. The index fell to 65.4 today.

    "The RSI is something to look at; I just don't think it's a bearish signal yet," said Dhiren Sarin, a Barclays Capital analyst in London. "This dip is a buying opportunity."

    Sixteen of 24 analysts, investors and traders recently surveyed by Bloomberg News predicted a decline in copper prices next week. The other eight said the metal would rise.

    Among other metals for delivery in three months on the LME, aluminum slid 3 percent to settle at $1,644 a ton. Tin retreated 0.6 percent to $15,650 a ton. Zinc fell 1.7 percent to $1,690 a ton, nickel dropped 0.7 percent to $15,690 a ton and lead sank 1.9 percent to $1,785 a ton.

    (Source: Bloomberg)