Copper Slumps On Demand Worries, Thin Trade

NEW YORK—Copper futures retreated as concerns about possible further Chinese efforts to cool the economy and higher crude-oil prices sent traders to cash in recent gains.

The contract for April delivery ended down 2.2%, or 9.7 cents, at $4.3010 per pound on the Comex division of the New York Mercantile Exchange. The April contract's last trading day is Wednesday.

The most actively traded contract, for May delivery, settled down 2.2%, or 9.7 cents, at $4.3030 per pound.

Copper futures erased much of last week's gains, as thin trading volume and worries about global demand caused traders to lock in profits.

"This is going to be a traders' week with wild swings, but we're not really going anywhere," said Larry Young, president of Covenant Trading LLC, adding that prices are likely to remain stuck between $4.252 and $4.403 a pound.

Concerns that China will further tighten monetary policy pushed futures prices lower earlier in the trading session. China, the world's largest copper consumer, has struggled to curb rising inflation as booming commodity prices push up the price of food, fuel and other basic necessities.

Chinese authorities have raised domestic banks' reserve-requirement ratios six times since last October to 20.5%, a cumulative increase of three percentage points, compared to 1.5 percentage points in the prior year. Some fear that interest-rate increases will soon follow.

The policies aim to cool inflation by restricting credit availability and slowing economic activity and hence demand for metals like copper, which is used in commercial and residential construction as well as electrical infrastructure.

Higher oil prices also muted trader expectations of future copper demand. As energy prices rise, consumers are forced to divert more funds to fuel costs, leaving less cash to spend on copper-containing items like iPods, air-conditioners, and copper pipe and electrical wire for home renovations. The most actively traded oil contract, for May delivery, touched a high of $113.48 a barrel.

"The idea that these high energy prices are going to retard growth is the principal driving factor behind copper prices," said Sterling Smith, an analyst at Country Hedging.

Low trading volumes exaggerated a sharp decline in copper prices shortly after 10 a.m., with the most-active contract tumbling around four cents over the course of six minutes.

The declines came shortly after the Commerce Department reported a rise in the sales of new homes in March, from an all-time low a month earlier. Sales grew 11.1% on a monthly basis to a seasonally adjusted 300,000, outpacing the 287,000 forecast by economists.

However, the upbeat news failed to stem sharp losses in copper prices.

"There wasn't anything particularly shocking in those numbers, but the London markets are closed today so trade is a little bit thin and it's exaggerating any moves we have," Mr. Smith said.

(Source: http://online.wsj.com/article/SB10001424052748704132204576284880556420892.html)