Base metals weaken

Weak economic data take their toll on base metals

Copper prices ended lower on Thursday, 19 August 2010. Prices dropped due to weak set of economic reports and strong dollar.



At USA, copper futures for September delivery ended lower by 3 cents (0.9%) at $3.32 a pound on Thursday. Copper lost 2.7% last week. For the month of July, copper ended higher by 12% as concerns about a slowdown in the global recovery abated, pushing the red metal to its best month since April 2009.

Before this, for second quarter, copper dropped 16%. 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 higher by 3%. On a yearly basis, copper has gained 20%.

On Thursday, at LME, copper for delivery in three months ended lower by $85 (1.2%) at $7,305. 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. Copper ended FY 2009 higher by 140%.

The U.S. buys about 13% of the 17 million metric tons of copper sold annually and China buys about 20%. Copper fell for three months in a row through June on concern about efforts to curb growth in China, the world's biggest user of the metal.

In the currency market on Thursday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies erased earlier gains and climbed up.

The Labor Department in US reported on Thursday, 19 August 2010 that first-time filings for state unemployment benefits rose unexpectedly last week to reclaim the highest level since the middle of last November. As per the report, initial claims rose 12,000 to 500,000 for the week ended 14 August 2010.

Claims had fallen as low as the 427,000 level in mid-July but have worsened steadily since and now have increased for three straight weeks. Meanwhile, the latest four-week moving average for initial claims rose 8,000 to stand at 482,500. This is the highest level since December 2009.

In addition to this, the surprisingly weak Philly Fed report, as well as a simultaneously released leading economic indicators report combined to rattle U.S. stocks on Thursday.

The Federal Reserve Bank of Philadelphia in US reported on Thursday, 19 August 2010 that the factory sector in the Philadelphia region showed unexpected weakness in August falling into negative territory for the first time in a year. As per the report, the Philly Fed's business activity index fell to negative 7.7 in August from positive 5.1 in July, well below the positive 7 expected.

The surprisingly weak Philly Fed report, as well as a simultaneously released initial claims report combined to rattle U.S. stocks. At the same time as the Philly Fed report, the Conference Board reported its leading economic index rose 0.1% in July against an expected forecast of a 0.2% advance.

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.

Among other metals traded in the LME on Thursday, lead ended 0.2% lower at $2,105 a ton and zinc ended 0.1% lower at $2,078 a ton. Nickel ended 0.3% lower at $21,821. Aluminum ended 0.3% lower at $2,115.5 a ton.

At the MCX, copper prices for August delivery ended lower by Rs 2.5 (0.95%) at Rs 340.95/Kg. Prices rose to a high of Rs 347.3/Kg and fell to a low of Rs 339.15/Kg.