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Zinc advances, Copper May Rebound From Biggest Decline Since July as the Dollar Weakens
By Anna Stablum - Oct 20, 2010 5:01 AM PT

Copper may gain in New York and London, rebounding from the biggest drop in three months, as the dollar weakens.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.7 percent. December- delivery copper slid 2.5 percent yesterday on the Comex in New York, the most since July 16, after China, the world’s biggest consumer of the metal, raised interest rates. The increase will have scant effect on metals, traders and analysts said today.

“It looks like the knee-jerk reaction to the China rate hike is over and the market has had time to absorb the implications,” said Alex Heath, head of industrial-metals trading at Royal Bank of Canada Europe Ltd. in London. “The key again will be the dollar.”

December-delivery copper gained 1 cent, or 0.3 percent, to $3.7675 a pound at 7:50 a.m. on the Comex. Copper for delivery in three months climbed 0.1 percent to $8,270 a metric ton on the London Metal Exchange.

China unexpectedly raised borrowing costs for the first time since 2007, lifting the benchmark one-year lending rate and the deposit rate by 0.25 percentage point.

The increase “is being seen as a vote of confidence in the resilience of the Chinese economy and should not derail it or impact levels of base-metal consumption for the longer term,” Heath said.

Asset Bubbles

The higher rates extend measures taken this year to rein in record loan growth and asset bubbles in the world’s fastest- growing economy, including curbing loans for third-home purchases and raising mortgage rates. Concern about the effect of steps aimed at slowing growth contributed to LME copper’s 16 percent drop in the second quarter.

“Surprise macro policy shifts like this, aimed at taking the wind out of economic and speculative trade activity, have only a brief impact on markets,” Tom Price, an analyst at UBS AG in Sydney, said in a report e-mailed today.

The dollar index slid before the Federal Reserve releases its Beige Book regional business survey, which may show a slowing U.S. economic recovery, at 2 p.m. in Washington. A weaker U.S. currency makes dollar-priced commodities cheaper in terms of other monies and spurs demand for raw materials as an alternative investment.

27-Month High

Speculation that the Fed may signal further measures to ease credit probably will support metals, along with “all the consumer/speculative commodity buying that accompanies this plus seasonal restocking,” UBS’s Price said.

Copper yesterday touched $8,492 a ton, the highest intraday price since July 7, 2008, on the LME. Today it slid as low as $8,170, the lowest level since Oct. 12.

LME copper stockpiles gained 0.2 percent to 370,750 tons, exchange figures showed. Orders to draw copper from LME inventories, or canceled warrants, jumped 14 percent to 25,350 tons.

Tin for three-month delivery on the LME rose 2.1 percent to $26,450 a ton. Prices reached a record $27,338.50 on Oct. 14. The metal has jumped 56 percent this year, leading advances on the exchange, after production was disrupted in Indonesia and the Democratic Republic of the Congo.

Canceled warrants for tin more than doubled to 455 tons, according to the LME. Exchange inventories of the metal rose 1.8 percent to 12,690 tons.

Nickel was unchanged at $23,475 a ton. Cash nickel’s discount to the three-month contract yesterday swelled to $69 a ton, the widest level since Aug. 18, from $59 in the prior session, according to LME data. Cash metal closed at a $4 premium on Oct. 1. LME stockpiles of nickel have gained 1.6 percent this month to today’s 124,572 tons.

Aluminum was little changed at $2,356 a ton, lead gained 0.6 percent to $2,414 a ton and zinc advanced 0.8 percent to $2,415 a ton.

http://www.bloomberg.com/news/2010-10-20/copper-may-rebound-from-biggest-decline-since-july-as-the-dollar-weakens.html