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Comex Copper Review: Liquidation; Hurt By Data, Rate Fears
DOW JONES NEWSWIRES
Fund liquidation sent high-grade copper futures sharply lower in New York
Wednesday, with sell stops triggered, analysts said. Soft U.S. economic data,
worries about interest rates, news about Escondida's hedging program and
chart-based factors all played a role.
The most-active March copper contract settled down 7.55 cents at $2.1910 per
pound on the Comex division of the New York Mercantile Exchange. May fell 7.80
cents to $2.1680.
"Copper is being pushed because of the industrial-production number, the (Fed
Chairman Ben) Bernanke testimony and a story about Escondida's hedge program,"
said Jim Quinn, commodity floor analyst with A.G. Edwards. "I think the funds
are getting out because the technicals look a little suspect."
The Federal Reserve reported that U.S. industrial production fell 0.2% in
January, falling short of expectations for a 0.3% gain, although December
output was revised up to a 0.9% increase from the previously reported 0.6%
rise. Capacity utilization slipped to 80.9% in January - not far from the 80.8%
forecast - from an upwardly revised 81.2% in December.
"The talk of possible rate increases should be dollar supportive and put a
hurt on all of the metals," said Quinn. "But copper, in particular, got
shellacked."
As the new Federal Reserve chairman, Bernanke delivered his first semiannual
economic testimony before the House Financial Services Committee Wednesday
morning. He said "economic expansion remains on track" but also commented that
he concurs with the Jan. 31 Fed policy statement suggesting that more policy
firming may be necessary.
"He talked up the dollar by saying additional interest-rate hikes may be
needed," said George Gero, vice president with RBC Capital Markets Global
Futures. "Talking up the dollar weakens the euro and all of the metals."
As for Escondida, the Chilean miner said in an explanatory note in its 2005
earnings report Wednesday that it began a hedging program in October.
Gero also commented that copper has been hurt since there haven't been
declines in London Metal Exchange warehouse stocks in recent days.
"If there are less out movements, that means temporarily that the cash demand
slowed up," said Gero. LME inventories rose 925 metric sons Wednesday to
106,375 after builds of 3,225 and 3,050 the first two days of the week.
"Clearly, it looks like some stop-loss and fund-type selling in the market,"
said Quinn.
The March futures fell through nearby chart support that several traders had
put around $2.1850, the lows from Monday and Friday. The contract bottomed at
$2.1750, its weakest level since Jan. 25. Quinn listed a range of support from
around $2.18 to $2.15.
A trader put the next downsides level at $2.1530, which failed as resistance
on Jan. 24 and thus became support. He listed resistance initially at the
pit-session high of $2.2430 to $2.2450, then Tuesday's high for the week of
$2.2760.
"It's interesting that everything got hit today," said Gero. "It looks to me
like you've got fund selling."
This also occurred in commodities such as energy, gold and platinum, in
addition to copper, he explained. "You've got sell stops going off all over the
place, including copper."
A couple of traders commented that the Comex market had a weaker tone after
three-months copper in London had been unable to penetrate resistance. In
particular, London-based analysts with Triland cited an inability of the
three-months copper on the London Metal Exchange to break through its 10-day
moving average.
"Once below $4,900 (a metric ton), liquidation tended to gather pace, with
disappointing U.S. IP (industrial production) figures, then very weak ali
(aluminum) and zinc weighing heavily on sentiment," they wrote. They added,
however, that some trade support emerged on the decline.
In other U.S. economic news, the New York Fed said the headline index in its
monthly manufacturing survey was at 20.31 in February, little changed from
20.12 the prior month. Economists had expected a pullback to around 18.0.
Three U.S. economic reports are on the calendar for 8:30 a.m. EST Thursday.
They include:
-- January housing starts, forecast to rise 5.3% to an annual rate of 2.035
million;
-- January import prices, expected to be up 1.2%; and
-- first-time weekly jobless claims, expected to rise 5,000 to 282,000.
The Philadelphia Fed's business index is due out at noon EST, with the
heading index expected to be up to 10.0 in February from 3.3 in January.
Also Thursday, Bernanke is scheduled to deliver his second round of
semiannual congressional testimony in an appearance scheduled before the Senate
Banking Committee at 10 a.m. EST.
Settlements (ranges include overnight and day sessions):
Mar (HGH06) $2.1910; down 7.55c; Range $2.1750-$2.2700
May (HGK06) $2.1680; down 7.80c; Range $2.1500-$2.2490
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