Copper Drops to 6-Week Low as Stronger Dollar Reduces Demand

By Millie Munshi

July 24 (Bloomberg) -- Copper fell to a six-week low as a stronger dollar reduced demand from investors seeking a hedge against inflation.

The U.S. Dollar Index, which values the currency against a basket of six major counterparts including the euro and yen, gained as much as 0.3 percent today, reaching a two-week high. Copper has gained 18 percent this year, partly as a slump in the U.S. currency increased the appeal of metals as a store of value.

``A stronger dollar is holding back base-metals prices this morning,'' Alex Heath, the head of industrial metals trading at RBC Capital Markets in London, said in a report.

Copper futures for September delivery fell 8.05 cents, or 2.2 percent, to $3.577 a pound on the Comex division of the New York Mercantile Exchange. The price earlier dropped to $3.555, the lowest since June 13. The metal declined 0.9 percent yesterday.

Futures also fell after a gain in inventories increased concern demand is waning for the metal, used in pipes and wires. Stockpiles monitored by the London Metal Exchange added 1.1 percent to 130,875 metric tons, the highest since March 10.

Slower global growth may reduce copper demand by up to 10 percent this year, Donald Selkin, the chief market strategist at National Securities Corp. in New York, said this week.

Sales of previously owned U.S. homes fell in June to the lowest level in a decade, deepening the housing recession now in its third year, the National Association of Realtors said today.

`Taking A Hit'

``The market is taking a hit today because of the home- sales report,'' said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. ``Economic data is still coming in lousy and demand is projected to fall.''

Codelco, the world's largest copper producer, said output may decline for a fourth year because of labor unrest and aging mines. Freeport-McMoRan Copper & Gold Inc., the second-biggest miner of the metal, this week cut its forecast for production this year.

Traders are ``shrugging off'' news of declining mine output because of ``the outlook for a global slowdown and the anticipation of falling demand,'' Zeman said.

``People are thinking, 'What difference does it make anyway,' since demand is going down,'' he said.

On the LME, copper for delivery in three months lost $140, or 1.7 percent, to $7,940 a metric ton ($3.6016 a pound). The price reached a record $8,940 on July 2.

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