copper leads metal declines as rate rises dampen g

Copper Leads Metal Declines as Rate Rises Dampen Growth Outlook
June 12 (Bloomberg) -- Metals declined in London, led by the biggest three-day drop in copper futures since October 2004. Zinc and nickel also fell on concern that last month's price rally was overdone.

Copper has dropped about 20 percent from a record $8,800 on May 11, and other commodities including gold and silver declined on concern that rising interest rates will slow global economic growth. Central banks from Asia to Europe boosted lending rates last week in a bid to curb inflation.

``Base metals aren't really acting independently,'' Roy Carson, London-based trader at Triland Metals Ltd., which trades on the floor of the LME, said in a telephone interview. Copper has ``very much caught up with what broader asset classes are doing,'' such as gold and the dollar.

Copper for delivery in three months on the LME dropped as much as $340, or 4.7 percent, to $6,880 a metric ton, and traded at $7,105 as of 10:39 a.m. in London. Zinc fell $40 to $3,280 and nickel slid $250 to $19,600.

The European Central Bank on June 8 lifted its benchmark interest rate for a third time in six months. South Korea raised its key lending rate the same day and was followed by increases in India and South Africa. Turkey lifted borrowing costs the previous day. At least four Federal Reserve officials said last week they're concerned about inflation.

``Consumers aren't buying because they hope prices will fall further,'' said Shen Haihua, Vice President of Maike Futures Co. by phone from Shanghai today.

Copper Survey

Five out of eight traders, analysts and investors surveyed by Bloomberg News on June 8 and 9 said copper will drop on the London Metal Exchange this week. Three forecast a rise.

BHP Billiton, the world's largest mining company, retreated 1.2 percent to 954 pence in London. Kazakhmys, a copper producer based in Kazakhstan, declined 1.5 percent to 1,012.5. Antofagasta Plc, the London-based owner of three copper mines in Chile, slid 1.3 percent to 1,868.

Stockpiles of copper monitored by the LME rose 825 tons, or 0.7 percent, to 111,950 tons, the exchange said today in a daily report. That's equal to three days of global consumption.

Copper inventories in Shanghai rose about 11 percent last week to their highest since Feb. 23. Stockpiles in exchange warehouses in London, New York and Shanghai jumped 3 percent to 172,503 tons as of June 9 from June 1, Bloomberg figures show.

``Investment funds have probably withdrawn money from commodities,'' said Yuan Fang, a trader at Shanghai Dongya Futures Co., by phone. ``The rally was overdone.''

Attraction

Speculators have been attracted to copper by forecasts that global demand will outstrip supply this year. Investment funds have increased their holdings of commodities to gain greater returns than those available from stocks and bonds.

HSBC Holdings Plc estimated last month that about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003.

Hedge-fund managers and other large speculators increased their net-short position in New York copper futures in the week ended June 6, according to U.S. Commodity Futures Trading Commission data released on June 9.

Speculative short positions, or bets prices will fall, outnumbered long positions by 7,302 contracts on Comex, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 930 contracts, or 15 percent, from a week earlier.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves.

Aluminum fell $23, or 0.9 percent, to $2,492 a metric ton, lead fell $2 to $1,008 and tin fell $75 to $7,900. Among precious metals that fell, gold for immediate delivery fell $1.20, or 0.2 percent, to $606.25 an ounce.



To contact the reporters on this story:
Katy Watson in London at [email protected];
Xiao Yu in Beijing at [email protected]
Last Updated: June 12, 2006 05:45 EDT