Copper Declines as Inventory Increases Signal Demand Weakness

LONDON, July 7  -- Copper prices fell the most in almost a week as inventories tabulated in London and Shanghai continued to rise, signaling softer demand, and the dollar advanced.

    Stockpiles in warehouses monitored by the London Metal Exchange, which declined for 40 straight sessions through July 2, rose for a second day. The U.S. Dollar Index, a six-currency gauge of the greenback's value, climbed as much as 0.6 percent, curbing demand for commodities as a hedge against inflation.

    "A combination of rising stockpiles and the stronger dollar is having a negative impact on prices," said Donald Selkin, National Securities Corp.'s chief market strategist in New York. "People are getting nervous about the outlook for copper."

    Copper futures for September delivery slid 4.3 cents, or 1.9 percent, to $2.2625 a pound on the New York Mercantile Exchange's Comex division. That marks the steepest decline for a most-active contract since June 30.

    Copper inventories tallied by the LME rose 900 metric tons, or 0.3 percent, to 269,175 tons. Stockpiles in Shanghai gained 6.9 percent to 59,980 tons last week, data from the Shanghai Futures Exchange show.

    Investors have been "spooked" about the economic outlook after a report last week showed the U.S. unemployment rate rose to 9.5 percent in June, the highest since August 1983, Selkin said. The U.S. trails only China in copper use.

    'Sentiment' Change

    "You have had this change in sentiment, with the gradual realization that unemployment levels are rising and that this recession is going to run longer," said Alex Heath, RBC Capital Markets' head of industrial-metals trading in London. The U.S. jobless rate climbed from 9.4 percent in May, the Labor Department reported on July 2.

    Copper pared declines after a report showed U.S. service industries contracted at a slower rate for the third straight month. The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the U.S. economy, rose to 47 last month from 44 in May. Readings of less than 50 signal a contraction.

    China's fixed-asset investment growth is expected to slow, implying "a significant reduction in copper imports," Michael Lewis, a Deutsche Bank AG analyst in London, said today in a report. China's excess copper inventories amount to between 700,000 and 1 million tons after imports more than doubled this year, the bank said.

    Copper for delivery in three months slipped $10, or 0.2 percent, to $4,970 a metric ton ($2.25 a pound) on the LME.

    Deutsche Bank predicted copper for immediate delivery will average $4,197 a ton in London this year and $4,420 in 2010.

    Among other LME metals for three-month delivery, aluminum rose 1 percent to $1,617 a ton and zinc gained 0.9 percent to $1,565 a ton. Nickel fell 1.6 percent to $15,950 a ton, lead sank 1.5 percent to $1,684 a ton and tin slid 0.9 percent to $14,275 a ton.

    (Source: Bloomberg)