Comex Copper Slips On China Rate Hike Worries

NEW YORK (Dow Jones)--Copper futures extended their losses Friday despite the supportive influence of a weak dollar, as low trading volumes amplified concerns that China may raise interest rates at the weekend.

China is the world's largest copper consumer, accounting for around 40% of world demand, and its battle against inflation has seen authorities raise interest rates to cool economic growth. These measures have curtailed copper purchases by manufacturers and fabricators, pressuring demand for the metal.

"There's some genuine concern of late that maybe China's done stocking copper for a while," said Rob Kurzatkowski, senior commodity analyst at optionsXpress. "A lot of Chinese firms have gotten smarter about their copper purchases and maybe they'll wait for a bit more of a pullback."

The front-month May-delivery contract settled down 7.95 cents, or 1.9%, at $4.1655 a pound on the Comex division of the New York Mercantile Exchange.

The most actively traded contract, for July delivery, ended 8.25 cents lower, or 1.9%, at $4.1790 a pound.

Copper prices retreated ahead of the weekend on worries that the People's Bank of China might raise interest rates over the Chinese Labor Day Monday celebrations. The bank has a history of announcing policy changes on holidays and on weekends.

A weak dollar did little to stem copper's decline. The ICE U.S. Dollar Index, which tracks the dollar against a trade-weighted basket of foreign currencies, fell to its lowest point since 2008 at 72.834. The dollar has been under siege since the Federal Reserve Wednesday maintained its bias toward cheap credit and indicated interest rates will remain low.

A weak dollar stokes demand for dollar-denominated copper futures among foreign investors, as the contracts appear cheaper relative to their home currencies.

"Typically you'd see copper much higher than it's been trading right now. At these levels its a good buy on the currency play alone," said Bob Haberkorn, senior market strategist at Lind-Waldock division of MF Global.

Thin trading volumes amplified the negative sentiment, as individual trades have greater influence on price when volumes are low.

Copper markets are quiet as the London Metal Exchange, a global hub of copper trade, is closed in observance of the royal wedding Friday and bank holiday Monday.

Mixed physical copper inventory data, showing declining stocks in China but rising stocks at London Metal Exchange warehouses in the Asian region, is further clouding the outlook. Copper stocks are considered an indicator of demand; however, concerns over secret stores of copper in China have pressured copper prices in recent months.

Copper stored at the Shanghai Futures Exchange warehouses fell to a three-month low Friday to 128,268 metric tons, down 10,808 tons, according to a weekly report by the exchange. However, copper stored at bonded warehouses, tax-free zones monitored by the exchange, rose 902 tons to 31,006 tons.

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