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Quiet Market? Think Again . . . Copper is Melting Down!!

Posted by Larry Doyle on February 3, 2010 3:16 PM |

Just a quiet Wednesday in the markets?

Let’s see . . . major equity averages are flat to down .5% on the day, bonds have backed up 5 basis points but remain within the range, the dollar is doing a little better but not making a major move. Might be a good day to catch the early train home because nothing is going on? Not so fast . . . let’s look a little deeper because I think there is a major move afoot in a certain market segment. What would that be?

Commodities in general. Copper specifically.

I continue to believe our equity markets will take direction from:

>> China
>> commodities
>> interest rates, primarily mortgage rates.

While most market segments today are marking time, commodities as measured by the DJ-UBS Commodity Index are down 1.4%. (Look at the graph found in the provided link. Looks mighty bearish to me.)

Copper specifically is down almost 4% on the day. Why is copper melting down (no pun intended)?

Reuters reports, U.S. Copper Drops $3/lb on Economic Recovery Fears:

NEW YORK, Feb 3 (Reuters) – U.S. copper futures fell more
than 2 percent and neared the $3.00 per lb level Wednesday
morning, as mixed economic data and lingering concerns about
tighter Chinese monetary policy continued to counter recovery
optimism.

* Benchmark copper for March delivery HGH0 dropped 7.15
cents, or 2.3 percent, to $3.0180 per lb by 10:46 a.m. EST

* Range $3.0155 to $3.1440.

We took out the bottom end of that range.

* Copper weighed down by currency-related selling pressure
after data showed smaller-than-forecast drop in U.S.
private-sector employment in January.

* Copper losses accelerated after data showed
less-than-expected rate of growth in U.S. services sector.

* Copper sentiment slammed by Chinese government clampdown
on bank credit.

* India’s copper demand likely to grow by at least 7
percent in financial year 2010/11 on strong power
infrastructure sector.

This last bit of news from India would be a net plus, but overall I see a lot of warning signs in this color and it is being reflected in the price action within the copper market today.

Copper is now down almost 15% from its highs seen in early January.

Quiet day? Don’t think so. Navigate accordingly.

LD

  • Bruce Herring

    Larry,

    Perception is everything, I know. Right now the perception is China is tightening rates. I read eight points higher. This is tightening?

    Other data suggests China is importing CU at a furious rate, supporting the CU price. China can stop for a while and drive it down quickly. Why not, it is in their interest to do so.

    Bruce

    • LD

      Bruce,

      Are you thinking China is trying to drive the price lower intentionally? I gather that in your comment.

      • Scoop

        Copper down another 1.5% on the open along with gold as well.

        Looks like a lot of the hedge funds guys are getting taken out of their dollar carry trades.

        Nice call.

        • TML

          The shine is coming off these metals. Gold down 4% on the day and copper down 2.5%.

          There are more than just bulls and bears on Wall Street. There are also pigs and today they are getting slaughtered.

      • Bruce Herring

        Yes Larry, I think China has pushed the price down in the past so they can stock up on the cheap. This point has been discussed on message boards I frequent.

        Therefore China may be doing it now. Not easy for a retail investor to acquire the data until well after the fact.

        Bruce

  • John Wallace

    FROM KITCO 02/03/10,
    Copper prices (HG-FT) collapsed to fresh 2-1/2-month lows Wednesday, as extended gains in the U.S. dollar and concerns over Chinese monetary tightening and European credit problems reflected an uncertain outlook for the global economic recovery.

    Benchmark copper for March delivery on the New York Mercantile Exchange’s Comex division plunged 11.60 cents, or 3.75 per cent, to finish at $2.9735 a pound, its lowest level on a settlement basis since Nov. 12.

    Over at the London Metal Exchange, copper for three-month delivery closed down $230 at $6,590 a tonne, after dealing in a wide range between $6,948 and $6,545, another low dating back to the middle of November.

    “It’s primarily dollar-related,” Michael Gross, futures analyst with Optionsellers.com in Tampa, Fla., said of the selloff.

    “The sharp [dollar] upswing shows there are additional concerns about credit problems overseas in Europe.”

    The dollar rose broadly after the European Commission backed a Greek deficit-cutting plan as expected and worries mounted over the fiscal health of Portugal.

    A firm U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

    On the economic front, the pace of U.S. private sector job losses slowed in January, while modest growth was seen in the U.S. services sector.

    This data followed more upbeat data that included Tuesday’s home sales numbers, Monday’s manufacturing figures and economic growth data on Friday.

    “It’s [economic data] been a see-saw … fits and starts,” Mr. Gross said. “It’s going to be more of a daily thing, whereas copper is reacting now to more of the bigger macroeconomic factors.”

    Copper was hit in late January by investors’ fears that signs of monetary tightening in China could choke demand from the world’s top consumer of industrial metals.

    “China’s macro environment has changed from one predominantly focused on growth to one where balancing growth and inflation has become increasingly important to policy makers,” Barclays Capital said in a note.

    “Given China’s importance to key commodity markets, these moves have had a noticeable impact on sentiment.”

    LME copper stocks fell 675 tonnes to 540,475 tonnes. At the end of last week, copper inventories rose to about 543,500 tonnes to hit their highest level since last February.

    Stocks of aluminum, (AL-FT) used in transport and packaging, dropped 6,600 tonnes, but held near a record high above 4.6 million tonnes.

    A large portion of those aluminum stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.

    Aluminum ended at $2,083 from $2,120. Analysts said improving U.S. auto sales was boosting sentiment.

    “Over all, an annualized figure of 10.80 million units represents a solid figure especially given the state of the economy,” Standard Bank said in a note.

    “It will take time for sales to recover back to pre-crisis levels, however the steady increase in sales is another positive sign that should continue to underpin … industrial metal prices.”

    Zinc closed at $2,095 from $2,160, while battery material lead ended at $2,020 from $2,118 but earlier slipped 5 per cent at $2,010.25 to track other metals lower.

    Tin closed at $16,600 from $16,450 and steel-making component nickel was last bid at $18,195 from $18,300.






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