Maytaal Angel
LONDON — Reuters
Published on Thursday, Jan. 07, 2010 6:51AM EST
Last updated on Thursday, Jan. 07, 2010 6:52AM EST
Copper (HG-FT) fell on Thursday after hitting a 16 month high as the dollar strengthened, caution set in ahead of Friday's U.S. payrolls data and traders worried about possible monetary tightening in China.
Benchmark copper for three-months delivery on the London Metal Exchange traded at $7,610 (U.S.) a tonne at 1027 GMT from a close of $7,660 on Wednesday. Earlier, prices of the metal used in power and construction hit $7,796, a level not seen since August 2008. The People's Bank of China unexpectedly raised auction yields of its three-month bills for the first time since mid-August, seen as a significant step-up in liquidity tightening.
“It's in the background but if it was having a devastating impact on sentiment you might expect weaker prices,” said Leon Westgate, analyst at Standard Bank.
Ample liquidity, together with strong buying from China, the world's largest metals consumer, has helped fuel copper's stellar 140-per cent rise in 2009.
Investors were also cautious ahead of U.S. payrolls data on Friday. Economic indicators suggest the U.S. economy is recovering, but employment is a key component in ensuring the recovery is sustainable.
James Bullard, president of the St. Louis Federal Reserve Bank, said earlier the U.S. economy was close to the point when the unemployment rate will start to fall.
Elsewhere investors were selling ahead of the reweighting of the Dow Jones UBS and Goldman Sachs commodity indexes.
“What tends to happen is that leaders in terms of price performance the previous year will be sold during rebalancing,” said Daniel Major, analyst at RBS Global Banking & Markets.
He added: “The stronger dollar is probably having an impact (and) there's choppy trading ahead of payrolls.”
The U.S. dollar edged up versus a basket of currencies, making dollar-priced metals more expensive for non-U.S. investors.
Elsewhere, a fresh rise in LME copper stocks reminded investors that demand outside China remains weak. Stocks edged up 75 tonnes to 507,475, their highest since March last year.
Supply Discipline
Among other industrial metals, aluminum (AL-FT) , used in transport and packaging, was at $2,355 from $2,385. Stocks fell 4,450 tonnes but remained near a record 4.6 million tonnes.
“In the mid-term (1-2 years) we are hard pushed to get excited by aluminum and believe prices need to fall substantially in 2010 to force supply discipline,” said Bernstein Research in a note.
Zinc was at $2,676 from $2,718, having earlier hit $2,736, its highest since March 2008, while battery material lead was at $2,615 from $2,680.
The two metals rallied on Wednesday amid talk that several lead and zinc mines in Inner Mongolia, a region that produces 20 per cent of China's mined lead and zinc, were temporarily shut.
Tin was at $17,600 from $17,800, having earlier hit $17,850, its highest since October 2008, while steel making ingredient nickel was at $18,846 from $19,155. LME nickel stocks rose 426 tonnes to hit a new record 158,814 tonnes.
“Nickel is most vulnerable to a correction should you get a correction across the rest of the sector. It has a huge overhang of stocks (and) around 18 per cent of capacity could be brought back on line,” said Mr. Major.
