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Posted at Friday, June 12, 2009 EDT
Business
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Copper falls on U.S. dollar strength

Michael Taylor and Pratima Desai, Reuters

LONDON — Copper fell on Friday as a stronger U.S. dollar dented sentiment, bringing prices back from this week's eight-month highs, but analysts expected to see further gains because of brighter economic prospects.

Copper for three month delivery on the London Metal Exchange ended at $5,230 (U.S.) a tonne from $5,380 at the close on Thursday.

The metal used in power and construction has gained more than 70 per cent this year and about 10 per cent since the start of June on stronger economic data and expectations of higher demand in the future.

“Investors are becoming more positive on the macro economic outlook and we are seeing more interest in commodities as a whole,” said Gayle Berry, analyst at Barclays Capital.

“We may see more of a rally before a pullback ... But increasingly I'm thinking that when the pullback does happen it won't be as deep or as long lasting as we previously thought.”

Analysts cited Chinese industrial production, up 8.9 per cent in May from a year ago, as one reason to be bullish because the country is the world's largest consumer of copper.

The dollar rose against the euro after data showed consumer sentiment in the United States improved slightly in June and euro zone industrial production shrank in April.

A higher U.S. currency makes commodities priced in dollars more expensive for holders of other currencies.

“Some people are using the dollar as an excuse to book profits,” a trader said, adding that much of the gain this week had been fuelled by funds using trading models that give out buy or sell signals.

Falling stocks of copper in LME warehouses have in recent months supported prices. Currently stocks stand at just above 290,000 tonnes compared with levels around 500,000 in February and March.

“Further gains will be much harder in the very short term,” said Citigroup analyst David Thurtell. “However, the global recovery seems on track and metals should pick up through the second half of 2009 and [into] 2010.”

Aluminum, used in transport and packaging closed at $1,644 a tonne from $1,693 on Thursday. It has gained about 15 per cent this month on expectations of improving demand from China, the world's largest consumer.

Potentially stronger demand is reflected in cancelled warrants – metal already earmarked for delivery – on stocks in LME warehouses. Analysts think aluminum from LME warehouses could be heading for Chinese stockpiles.

Latest data show cancelled warrants at 127,775 tonnes from 45,700 tonnes on May 11, while LME aluminum inventories fell 3,025 tonnes to 4.2 million tonnes, still near record highs.

“Aluminum prices may have benefited from improved sentiment towards the global economic outlook and its status as one of the most cheaply priced industrial metals,” Deutsche Bank said in a research note.

Zinc closed at $1,690 a tonne from $1,720 on Thursday, lead at $1,780 from $1,819 and nickel at $15,690 from $15,800 on Thursday.

Tin was untraded at the close, but bid at $15,625 a tonne from $15,750