Copper slips from new high, US GDP disappoints

Saturday, 28 January 2012 02:41

NEW YORK/LONDON: Copper slipped in moderate volume on Friday after underwhelming US economic growth figures doused a rally in higher-risk assets that had lifted prices of the red metal nearly 15 percent this month.

Copper hit, then eased from a four-month high to consolidate above the 200-day moving average, a key technical trend indicator that was cleared on Thursday for the first time since prices fell below the line last August.

Prices of the red metal still managed to post a third straight week of gains on strong technical momentum, optimism for a conclusion of Greek debt talks and brighter commodity demand prospects from a US Federal Reserve pledge to keep interest rates low.

Yet with most Asian markets, including the Shanghai Futures Exchange shut this week for the Lunar New Year holiday, analysts questioned the sustainability of the move given China's return next week.

"There has been an element of re-stocking in China, but I don't this will continue with the price where it is. I think they will be very well tempted to sell into it," said Bart Melek, head commodity strategist with TD Bank Financial Group.

"I don't expect a huge correction, but a bit of a retracement is entirely possible ... probably toward $3.70."

London Metal Exchange (LME) benchmark three-month copper peaked at $8,679.50 per tonne, a new high dating back to Sept. last year, before ending the day down $60 at $8,530.

In New York, the benchmark March COMEX contract dipped 1.25 cents to settle at $3.8890 per lb, down from its own four-month peak at $3.9390.

Volumes late in New York stood near 46,500 lots, largely in line with the 30-day average, but down from healthier levels seen earlier in the week, according to preliminary data from Thomson Reuters.

Copper's losses were rooted in data showing that while US gross domestic product grew at an 2.8 percent rate last fourth quarter, its fastest pace in 1-1/2 years, the number was slightly disappointing.

"The data was worse than expected. The US was still growing, but if you exclude inventories, the real growth was only 0.8 percent," said Andrey Kryuchenkov, an analyst at VTB Capital.

"At the moment copper is still trading on macro sentiment despite drawdowns of inventories. We needed to see a correction anyway as the market was overbought. China is also quiet, and it will take time before the euro zone problems are resolved, so copper is running out of steam a bit."

The euro briefly pared gains late in choppy business Friday after Fitch Ratings downgraded five euro zone sovereigns.

Sluggish demand from China, as well as a recovery in supplies and an uncertain economic outlook for the global economy, are set to weigh on copper this year, a Reuters poll showed.

US physical copper demand remained at a near standstill in the first few weeks of the year, with little to no spot business reported, as consumers rely on annual contracted material to fill their weaker demand needs, sources told Reuters.

STIMULUS

Supporting copper this week, Federal Reserve Chairman Ben Bernanke said the US central bank was ready to offer the economy additional stimulus after it announced it was likely to keep interest rates near zero until at least a year longer than it previously indicated to late 2014.

Also many investors hoped new developments would help stop the euro zone debt crisis from spreading.

EU Economic and Monetary Affairs Commissioner Olli Rehn described talks with private creditors on restructuring Greek debt as "very close" to closing, though some people were growing jittery that Portugal may require another bailout.

On the supply side the latest readings pointed to continued tightness in copper. LME inventories fell by 2,450 tonnes to 335,425, their lowest since September 2009.

"The outlook for industrial metals is now definitely improving as the combination of low interest rates and stabilizing economic growth is supportive for more cyclical sectors," said Credit Suisse in a note.

But it voiced concerns over China, the world's top copper consumer: "Next week's focus is likely to shift to China. We should get more indications whether Chinese inventories rose just as a result of restocking ahead of the Chinese New Year or because of a slowdown in demand."

In other metals, aluminium futures shed $11 to end at $2,265 a tonne, despite news that the world's largest aluminium producer, Russia's UC RUSAL, said it could cut output by 6 percent in the next 18 months.