Early COMEX copper sinks 2 percent on demand fears
Tue Nov 28, 2006 11:09 AM ET
NEW YORK, Nov 28 (Reuters) - Copper futures in New York slipped nearly 2 percent in early business on Tuesday, after a sharper than expected drop in U.S. durable goods orders raised concerns over slowing demand for industrial metals, sources said.
"The durable good number was negative. It kind of confirms what we have been talking about in terms of questions over the durability of demand," said Steve Platt, an analyst with Archer Financials in Chicago.
"With that in mind, the recovery rally, which we saw last week, was probably overdone and it narrowly was a correction in a market that seems to be suffering from weak demand," Platt added.
Copper for March delivery <HGH7> fell 6.05 cents, or 1.88 percent, at $3.1550 a lb by 11:01 a.m. EST (1601 GMT) at the COMEX division of the New York Mercantile Exchange, near the lower end of its early $3.1375-$3.2310 trading band.
December copper <HGZ6>, which goes into delivery on Thursday, lost 5.75 cents at $3.13 a lb, dealing from $3.11 to $3.2030.
Estimated COMEX copper futures volume at 10:00 a.m. reached 5,000 contracts, with 973 lots in switches.
Speculative players will continue to roll out of the December contract, repositioning their holdings in futures to avoid taking actual physical delivery of the metal when delivery begins on Thursday, Nov. 30.
New orders for U.S.-made durable goods tumbled much more than anticipated in October on a big drop in civilian aircraft but were also down unexpectedly when transportation was stripped from the total, a government report suggesting economic weakness showed on Tuesday.
Durables goods -- big-ticket items expected to last three years or longer -- fell 8.3 percent, the biggest drop since July 2000. The decline was propelled by a 21.7 percent fall in transportation orders, the Commerce Department said.[ID:nN28229381]
Despite a slight uptick in the pace of U.S. existing home sales, analysts were still doubtful of how healthy the housing market will be heading into 2007.[ID:nN28239734]
Investor concerns over the slowdown in the U.S. economy and softer demand growth from China, the world's largest consumer of the red metal, have placed a limitation on the market's upside potential.
The latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission reflected the market's limited interest after the data showed the net speculative short position in COMEX copper futures rose 6 percent to 18,102 contracts from 17,010 the previous week.
Fundamentally, the constant threat of supply disruptions in the market would continue to underpin copper prices.
On Monday, workers began a 48-hour strike over wages at Peru's Cerro Verde <CVE.LM> mine, the country's No.4 copper producer, but the company said production was unaffected.
Meanwhile, ongoing talks at Chile's Codelco, the world's largest copper producer, continued to keep the market on edge, with the company negotiating a new contract with the largest unions at its largest division, Codelco Norte. The current contract expires on Dec. 31.
Last week, nearly 300 workers from three smaller unions at Codelco Norte, the giant state-owned copper miner's largest division, voted to accept a three-year contract offer.
On the supply-side, London Metal Exchange warehouse stocks fell by 1,275 tonnes to 156,450 tonnes on Monday, while COMEX stocks rose by 944 short tons to 29,784 short tons on Monday.
LME three months copper <MCU3> last traded at $6,970 a tonne, down $125 from Monday's kerb close.
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