Copper Drops Most in Five Weeks in New York as Dollar Rebounds

By Millie Munshi

July 3 (Bloomberg) -- Copper fell the most in five weeks as a rebound in the dollar curbed demand for commodities as a hedge against inflation.

The dollar gained as much as 1.1 percent against a basket of the euro, yen and four other major currencies, halting a two- day slide. Yesterday, copper reached a record-high closing price in New York as the dollar dropped to a two-month low against the euro, spurring demand for commodities as a store of value.

``Copper is reacting to the dollar,'' said Ron Goodis, the futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Metals and commodities have been strongly correlated to movements in the dollar and the idea of inflation'' this year, he said.

Copper futures for September delivery fell 11.45 cents, or 2.8 percent, to $3.949 a pound on the Comex division of the New York Mercantile Exchange. That marked the biggest drop for a most-active contract since May 29.

Copper closed at $4.0635 yesterday on rising demand for raw materials as a hedge against inflation. The highest price ever was $4.2605 on May 5. Crude oil and soybeans also jumped to all- time highs yesterday, driving commodity indexes to records.

``Yesterday was pretty remarkable for copper,'' Goodis said. ``It's not surprising to see the price fall today after moving so fast yesterday.''

The dollar has dropped 5.2 percent against the basket of currencies this year, helping to spur a 30 percent jump in copper. The Reuters/Jefferies CRB Index of 19 raw materials is up 32 percent in 2008.

The dollar will drive copper ``for a little while longer,'' Edward Meir, a Stamford, Connecticut-based analyst at MF Global Ltd., said in a report.

Peru Strike

The market also will be ``heavily influenced'' by labor unrest by miners in Peru, Michael Widmer, a London-based analyst at Lehman Brothers Holdings Inc., said in an e-mail.

Peruvian mine workers began a national strike on June 30 to pressure Congress to pass laws mandating greater profit sharing and better pensions, Cirilo Yarihuaman, a spokesman for the Mining Federation, said yesterday. The group represents about 28,000 mine workers and 70 unions in Peru, the world's third- biggest copper producer.

Copper ``is in a very tight supply situation,'' Goodis of Equidex said. ``Any drop in supply would be reason for higher prices.''

On the London Metal Exchange, copper for delivery in three months fell $75, or 0.9 percent, to $8,645 a metric ton ($3.92 a pound). The price jumped to a record $8,940 yesterday.

To contact the reporter on the story: Millie Munshi in New York at mmunshi@bloomberg.net.