Copper drops for second straight day

Prices drop on global demand concerns

Base metal prices dropped for second straight day at Comex on Wednesday, 12 May 2010. Long-term implications of the European Union's rescue package and its impact on the currencies, specially on the euro, bothered investors and raised question about metal demand, specially from China, in coming months.

At USA, copper futures for July delivery ended lower by 2 cents (0.6%) at $3.188 a pound on Wednesday. Last week, prices lost 8%. In April, copper lost 6.1%. Copper gained about 6% for the first quarter, buoyed by data from the U.S. and other countries reinforced expectations that the global economic recovery was on track. On a year to date basis, in 2010, copper is lower by 7.6%.

On Wednesday, at LME, copper for delivery in three months ended lower by $78 (1.7%) at $6,929. Prices had crossed the $8,000 mark for first time since 2008 on 6 April. On 3 July, 2008, prices had touched an all time intra day high of $8,940.

Prices have increased by almost 51% in the past twelve months due to higher imports from China. Copper ended FY 2009 higher by 140%.

A decision by the European Union and International Monetary Fund leaders to pledge financial support to the eurozone brought about a wave of buying and short covering that caused the stock markets across globe to surge in its best single-session percentage gain in more than a year on Monday, 10 May. As per plan, countries in the eurozone that face financial uncertainty will be eligible to receive some 500 billion euros from the EU and another 250 billion euros from the IMF. In addition to those measures, the European Central Bank will buy eurozone bonds from the secondary market and the Federal Reserve has reactivated swap lines with foreign institutions. At least for the time being, those efforts have eased contagion concerns that have surrounded Greece for weeks.

But traders mulled over the fact today that in the long term how much financial aid will be pledged for euro zone countries that face tenuous fiscal conditions and also the issue of how those funds will be allocated efficiently and whether recipients can remedy their underlying problems. The long-term implication of this on the euro and worries about inflation also bothered investors.

In the currency market today, the euro dropped once again against the dollar. The euro has slipped 10.6% against the dollar this year. The dollar index, which measures the strength of the dollar against a basket of six other currencies rose by 0.4%.

The U.S. buys about 13% of the 17 million metric tons of copper sold annually and China buys about 20%.

Copper ended substantially higher last year on expectations of revived global economic growth along with a decline in the dollar. The dollar index had dropped almost 4.2% last year. The metal was also pushed higher by record first-half imports to China, the world's largest user.

At the MCX, copper for June delivery closed lower by Rs 1.1 (0.34%) at Rs 317.35/Kg. Prices rose to a high of Rs 323.75/Kg and fell to a low of Rs 314.7/Kg during the day's trading.

Among other metals traded in the LME on Wednesday, lead ended 1.3% lower at $2,023 a ton and zinc ended 0.2% higher at $2,075 a ton. Nickel ended 0.6% lower at $22,450. Aluminum ended 1.3% lower at $2,078 a ton.