Copper Declines as Dollar Rally Curbs Appeal of Raw Materials

By Glenys Sim

Dec. 17 (Bloomberg) -- Copper fell as a dollar rally reduced interest in raw materials as alternative investments.

The dollar surged to the highest level since Sept. 8 against a basket of six major currencies, including the euro and yen, before reports forecast to show U.S. initial jobless claims slowed and a gauge of the outlook for the world’s largest economy improved for an eighth month. The Federal Reserve said yesterday the economy is strengthening.

“The relationship between metals and the dollar has broken down a little in the past week as economic data has been supportive,” said Shanghai Tonglian Futures Co. analyst Shi Hai. “Still, if we see strong gains in the dollar, it will weigh on all commodities, including metals.”

Copper for delivery in three months on the London Metal Exchange fell as much as 0.8 percent to $6,980 a metric ton and traded at $6,990 at 11:56 a.m. in Singapore. The metal closed above $7,000 a ton yesterday for the first time since Dec. 4. March-delivery copper on the Comex division of the New York Mercantile Exchange slid 0.8 percent to $3.1805 a pound.

The dollar strengthened against 15 of its 16 major counterparts, rising to a three-month high against the euro today. Dollar-denominated commodities become more expensive for holders of other currencies when the dollar advances.

Copper in Shanghai pared gains after jumping to the highest level in more than 15 months in early trade on optimism the economic rebound will continue amid signs of an increase in demand. March-delivery copper on the Shanghai Futures Exchange added as much as 1.6 percent to 56,180 yuan ($8,228) a ton, the highest price for a most-active contract since Sept. 5, 2008, before trading at 55,660 yuan.

Chasing Gains

“The Shanghai market is chasing overnight gains made in London as the consumption outlook seems to be improving,” said Jiangsu Holly Futures Brokerage Co. analyst Lu Wei. “However, I don’t think there is much demand above $7,000 a ton as supplies are ample at this moment.”

LME copper rose the most in a month yesterday as builders in the U.S., the largest copper user after China, broke ground on 574,000 homes at an annual rate last month, an 8.9 percent increase from October. That followed a 10 percent drop the prior month. Permits for future construction climbed to the highest level in a year.

The worst postwar recession has damped consumption of the metal used in construction and automobiles, boosting LME stockpiles by 39 percent this year. The global copper market recorded a surplus of 196,000 tons in January to October, the World Bureau of Metal Statistics said yesterday.

Among other LME-traded metals, aluminum fell 0.5 percent to $2,264 a ton, zinc dropped 1.3 percent to $2,402 a ton, and lead slid 0.9 percent to $2,388 a ton. Nickel lost 1.3 percent to $17,275 a ton, while tin declined 0.5 percent to $15,400 a ton by 11:43 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net