September 6, 2012 / 2:46 PM / 7 years ago

Copper ends lower as market digests ECB plan

NEW YORK/LONDON (Reuters) - Copper fell on Thursday as the market set back after a three-day rally, despite supportive news that the European Central Bank will undertake an aggressive bond-buying program to help struggling euro zone countries.

Copper broke ranks with global equities and the euro, but remained near six-week highs. ECB President Mario Draghi said the central bank would undertake unlimited, short-dated bond purchases to keep borrowing costs down for Spain, Italy and other struggling countries.

Copper paused to digest the news of the ECB’s program as well as the bank’s decision to keep interest rates on hold. Traders also sided with caution after a double-dose of positive labor market news in the United States suggested Friday’s more comprehensive nonfarm payrolls report may come in stronger than many had previously expected.

“Draghi came out and disappointed the market because they did not provide an interest rate cut. Then he offered up what we kind of already knew, that these bond purchasing programs are likely and are going to occur,” said Bart Melek, head commodity strategist with TD Bank Financial Group.

“Still, a $3.50 (per lb) copper price is not too bad.”

COMEX copper for December delivery fell 1.25 cents to settle at $3.5165 per lb, after dealing between $3.4925 and $3.5390, its highest level since July 19.

COMEX trading volumes reached 56,000 lots in late New York business, more than a quarter above the 30-day norm, according to preliminary Thomson Reuters data.

At the London Metal Exchange (LME), three-month copper went untraded at the close but was bid at $7,700 per metric ton (1.1023 tons), away from an earlier six-week peak of $7,762.25 and down from a close of $7,740 on Wednesday.

Despite the mild losses, copper remained well supported as Draghi’s plan to help solve the critical debt situation in the euro zone should spur the region’s economic growth and boost demand for industrial metals.

“The fact that he (Draghi) omitted clear details spurred some liquidation (in copper) after the buying of the last few days,” T-commodity consultant Gianclaudio Torlizzi said.

“Although copper was unable to break through the next resistance levels of $7,750 and $7,820, it appears well supported and will likely move up in the next few days given the ECB’s propensity towards a more aggressive monetary policy.”

Copper also had a muted reaction to U.S. data that showed the number of Americans filing new claims for jobless benefits fell last week to its lowest level in a month and private employers added a stronger-than-expected 201,000 jobs in August.

The data is the latest to hint the U.S. economy is gaining a bit of steam, and threw into question whether the Federal Reserve will launch a new round of bond buybacks, known as quantitative easing, to stimulate the U.S. economy.

“If we get something around 140,000 and lower, people are going to jump on the QE bandwagon on the chances they will do something on September 13,” TD Bank’s Melek said.

“If this ADP number is correct and we get something north of 200 (thousand), QE is going to be off the table and you will get a little bit of a correction.”

The median of forecasts from economists polled by Reuters is for U.S. employers to have added 125,000 jobs in August, down from 163,000 new hires in July.

POOR DEMAND, POOR SUPPLY

Although LME copper stocks fell for the seventh consecutive session to hit their lowest level since October 2008, traders said demand for the industrial metal on the physical market remained sluggish.

But weak production data could help mitigate the effects of dwindling demand.

The world’s top copper producer, Chile’s Codelco, for example, produced 767,000 metric tons of copper in the first half of the year, down 6.4 percent year-on-year.

“Mine supply is not growing as much as expected, and that’s part of the explanation for why copper has outperformed the other metals in the last few months and this year as a whole,” Credit Suisse analyst Ivan Szpakowski said.

“The question now is whether that continues in the last four months or whether you finally get some of these ramp-ups and expansion. If that does happen, you leave copper prices very vulnerable.”

Additional reporting by Susan Thomas; Editing by Alison Birrane and Bob Burgdorfer

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