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Copper drops 1% as dollar strengthens ahead of Bernanke

17 Jul

copper

Copper futures came under heavy selling pressure on Wednesday, as the U.S. dollar strengthened ahead testimony on monetary policy by Federal Reserve Chairman Ben Bernanke later in the day.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at USD3.139 a pound during European morning trade, down 1.4% on the day.

New York-traded copper prices fell by as much as 1.5% earlier in the day to hit a session low of USD3.137 a pound.

Copper prices struggled for upside traction due to a broadly stronger U.S. dollar, as dollar-priced commodities become more expensive to investors holding other currencies when the greenback gains.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.2% to trade at 82.80.

Market participants looked ahead to Bernanke’s testimony on monetary policy amid speculation over the timing of a possible reduction to the bank’s USD85 billion-a-month bond buying program.

Copper prices advanced 2.7% last week after Bernanke said the Fed will continue to maintain accommodative monetary policy for the foreseeable future.

Investors also looked ahead to the release of key U.S. data on housing starts and building permits later in the day.

Any improvement in U.S. economic activity could scale back expectations for further easing, boosting the dollar and weighing on silver.

The Fed’s stimulus program is viewed by many investors as a key driver in boosting the price of commodities as it tends to depress the value of the dollar.

Elsewhere on the Comex, gold for August delivery shed 0.5% to trade at USD1,284.05 a troy ounce, while silver for September delivery fell 0.9% to trade at USD19.74 a troy ounce.

Moves in gold and silver this year have largely tracked shifting expectations as to whether the U.S. central bank would end its bond-buying program sooner-than-expected.

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China tight manufacturing, interest rates drag Copper down

20 Jun

Rise in interbank rates in Chinese markets to 12% gives out the impression that China is hitting on momentum brakes and provides for assumptions that the economy there is undergoing a deliberate slow down.

MUMBAI: With Chinese manufacturing shrinking at enhanced speed this month as reflected in HSBC-Markit PMI readings, questions are raised on the future prospects of copper.

The PMI reading came at 48.3 well below the 50 mark that separates expansion from contraction; of course, below-50 readings are indicative of contraction in the economy.

This, coupled with rise in interbank rates in Chinese markets to 12% gives out the impression that China is hitting on momentum brakes and provides for assumptions that the economy there is undergoing a deliberate slow down.

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The rates climbed as the central bank of China “refrained from using reverse-repurchase agreements to inject cash into the financial system,” as per Bloomberg.

“If market rates remain at such high levels, the only scenario for the Chinese economy is a hard landing,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing to Bloomberg.

“That possibility is growing now — it seems the leadership is deliberately taking a wait-and-see stance to see how low China growth can be,” he noted.

Meanwhile, Barclays in a report said that, “copper dominated by construction and infrastructure spending may be seeing a shift to permanently slower demand growth.”

“Sentiment among traders in China has shifted from short-term bullish to cautious on copper. On the one hand, refined supply remains tight in China due to smelter maintenance and scrap shortage, and physical premiums remained at elevated for domestic spot market and bonded warehouse stocks. On the other hand, LME prices fell sharply on bearish macro developments and failed to rally on supply disruptions which is viewed as a negative for future price action,” Barclays report added.

On the Comex, copper for delivery on July 13 was seen trading at $3.098 a pound, a loss of $0.041 or 1.31% as of 10.33 AM IST.

On the MCX, copper for delivery on June was seen trading down by 0.12% at Rs.407.85 as of 10.33AM IST.