March 14, 2008

Copper slips in nervous market


LONDON — Concerns about economic growth in the United States and global financial markets erased copper's earlier gains on Friday after it traded up 2 per cent at one point on a weak U.S. dollar and falling inventories.

In other metals, supply problems and fund buying pushed London Metal Exchange tin to a record high of $20,900 (U.S.) per tonne.

Copper for three-months delivery hit an intraday high of $8,545, up 2 per cent, before closing at $8,375 per tonne. It closed at $8,380 on Thursday.

“It is a bit of profit-taking and some nerves are coming into the market,” analyst Leon Westgate at Standard Bank said.

Investors were nervous as the dollar fell to a fresh 121/2-year low against the yen and a record low against the euro after Bear Stearns said its liquidity position had deteriorated, increasing fear of a deep U.S. recession.

The dive in the dollar pushed spot gold above $1,000 per ounce for the first time.

“This whole fear of the credit crisis being far from over seems to escalate on a daily basis,” analyst Daniel Hynes at Merrill Lynch said.

The fear of a U.S. recession hit European shares and the FTSEurofirst 300 index fell 1.06 per cent to 1255.02 points. U.S. stocks fell sharply with the Dow Jones industrial average down 1.93 per cent to 11911.52 points by 1717 GMT.

“It is a concern that one of the largest U.S. banks has problems ... but in metals it seems to be more of a selloff in nervous market conditions,” Standard Bank's Mr. Westgate said.

He said metals had held steady with some investors turning away from equities and putting their money into commodities.

“Commodities have done pretty well,” Mr. Westgate said.

A weak dollar makes industrial metals cheaper for local currency holders and boosts the appeal of commodities.

“Falling stocks and a weak dollar are the two main driving factors behind copper,” analyst Robin Bhar at UBS said. “Plus continued investor inflow to the commodities area generally.”

Copper is up some 27 per cent since the start of the year and powered to a record high of $8,820 per tonne last week.

Copper stocks in LME-registered warehouses stand around 128,000 tonnes, having fallen by 36 per cent since early January and only enough for less than three days' of global consumption.

But traders say the outlook is uncertain.

“News such as yesterday's weak retail data prompts people to say the U.S. is not doing well and copper, considering its big usage in construction, is going to suffer,” a floor trader said.

U.S. retail sales fell unexpectedly last month, deepening worries about the health of the U.S. economy, while U.S. Consumer Price Index data was flat last month after rising 0.4 per cent in January.

Three-months tin was last at $20,600 versus Thursday's last quote of $19,950/19,955.

Supply problems in Indonesia, China and the Democratic Republic of Congo highlight supply tightness, a Barclays Capital report said.

“We continue to view tin prices positively ... and anticipate further near term price appreciation and have increased our one month price target to $22,000/t,” it said.

Aluminum shed $30 to $3,085 a tonne.

Prices will rise this year and next because of power shortages in South Africa, and to a lesser extent China, a Reuters survey showed.

The price of cash aluminum would average $2,798 per tonne this year, rising to $2,930 in 2009.

Zinc was down $30 at $2,600 a tonne, lead fell $40 at $3,060, while nickel was at $32,550 versus Thursday's $32,150.

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