Copper Soars to Record as Slumping Dollar Spurs Commodity Rally

By Millie Munshi

July 2 (Bloomberg) -- Copper jumped to a record in London and closed at the highest ever in New York as a slumping dollar and surging energy costs spurred demand for commodities as a hedge against inflation.

The dollar fell to a two-month low against the euro after a report showed U.S. companies cut more jobs than forecast last month. Oil approached the record $143.67 a barrel, and the Reuters/Jefferies CRB Index of 19 raw materials reached the highest ever. Copper surged 34 percent this year as investors snapped up energy, grain and metal futures as a store of value.

``Inflation fears have made commodities king now, and copper is in the king's court,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``If the dollar continues to weaken, there's no telling how high copper could go.''

Copper rose as much 3.8 percent to a record $8,940 a metric ton ($4.05 a pound) on the London Metal Exchange. The previous all-time high was $8,880 on April 17.

The metal closed up $107.50, or 1.2 percent, at $8,720.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery rose 15.3 cents, or 3.9 percent, to $4.0635 a pound, the highest closing price ever. The price reached a record $4.2605 on May 5.

The dollar has dropped 14 percent against the euro in the past year, helping to spur a 15 percent rally in copper futures. Some traders buy commodities to preserve purchasing power.

Dollar `Getting Killed'

``The dollar is really getting killed, and copper is moving up primarily on that,'' said Donald Selkin, the chief market strategist at National Securities Corp. in New York.

The euro gained as much as 0.6 percent to $1.5887. The record was $1.6010 on April 22.

The CRB index, up 32 percent this year, reached 472.85, the highest ever. In the first half of 2008, commodities rallied 29 percent, the most in 35 years.

A strike in Peru, the world's third-largest copper supplier, triggered supply concerns, boosting metal prices.

Peru is a ``pretty significant producer,'' said Allan Trench, a London-based analyst at consulting company CRU. ``If it's an extended countrywide issue, it wouldn't take long to get to $9,000 a ton.''

A national strike by Peruvian mine workers which began on June 30 will continue until Congress sets a date for a vote on new industry legislation, Luis Castillo, general secretary of the Mining Federation, said yesterday. The group represents 28,000 mine workers and 70 unions.

Labor Protests

Labor unrest in Latin American countries including Mexico and Chile, the world's biggest source of the metal, has reduced mine output in the past year. Copper has soared more than fivefold since 2003 as mining companies struggled to keep up with increasing demand from China and other emerging economies.

Earlier, copper fell as much as 0.8 percent on concern that slower U.S. economic growth will curb demand for the metal used in homes, cars and appliances.

Companies in the U.S. cut an estimated 79,000 jobs in June, ADP Employer Services said today, citing a survey of employers. The median estimate of 27 economists surveyed by Bloomberg News was 20,000.

Slower U.S. growth will pressure prices for industrial commodities, investor Marc Faber said yesterday in a Bloomberg Television interview.

``Copper is in a tricky place right now after the jobs report,'' Selkin of National Securities said. ``The report is making the dollar weaker, which boosts copper on the inflation story. That weaker dollar also means that the economy is looking pretty miserable, and copper will have a hard time moving much beyond these current levels because of that.''

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