Copper Tumbles to Nine-Month Low as Demand Sags, Supplies Gain

Discussion in 'Wall St. News' started by S2007S, Jan 5, 2007.

  1. S2007S


    Copper Tumbles to Nine-Month Low as Demand Sags, Supplies Gain

    By Millie Munshi

    Jan. 5 (Bloomberg) -- Copper prices in New York tumbled to the lowest in nine months as slower economic growth reduced demand for the metal used in pipes and wires, boosting inventories.

    Global stockpiles are at the highest since June 2004. The U.S. economy grew at the slowest pace of 2006 in the third quarter, led by a decline in homebuilding. Builders are the biggest consumers of copper. Prices of the metal this week have slumped 10 percent, the most since late July.

    ``There are a lot of people caught off guard with these moves,'' said Michael Guido, director of hedge-fund marketing at Societe Generale SA in New York. ``I'd be surprised if all the selling has happened already.''

    Copper futures for March delivery dropped 4.2 cents, or 1.6 percent, to $2.56 at 11:16 a.m. on the Comex division of the New York Mercantile Exchange. The metal earlier touched $2.5525, the lowest since April 5. Prices in the fourth quarter plunged 17 percent, the most in nine years.

    A futures contract is an obligation to buy or sell a commodity at a fixed price for delivery by a specific date.

    Stockpiles in warehouses monitored by the Comex have gained more than fourfold in the past year as a slowdown in the housing market slashed demand for the metal.

    Construction spending fell for a third month in November as homebuilding fell by 1.6 percent, the eighth-straight drop, the Commerce Department said this week. Fewer Americans signed contracts to buy previously owned homes in November, suggesting continuing weakness in the real estate, an industry group said yesterday.

    `Leading Indicator'

    ``If overall housing sales stay slow, you could easily pare another 30 or 40 cents off of copper,'' Frank McGhee, head metals trader at Intergrated Brokerage Services Inc., said yesterday. ``Copper is a leading indicator. It's very sensitive to perceived economic conditions.''

    A slowdown in new-home construction shaved 1.2 percentage points off of growth in the third quarter, the biggest decline in 15 years. Builders account for 46 percent of copper use, putting about 400 pounds of the metal in the average U.S. home, according to the Copper Development Association.

    ``Demand is down in the U.S. and outside of the states,'' Guido of Societe Generale said. ``Now, we have the reality of a surplus of metal.''

    Inventories monitored by the London Metal Exchange have doubled in the past 12 months to the highest since March 2004. Supplies will exceed demand by 230,000 metric tons this year, Goldman Sachs Group Inc. said in a report last month.

    On the LME, copper for delivery in three months fell $715, or 1.3 percent, to $5,640 a metric ton. Prices have tumbled 11 percent this week.

    Before today, prices in New York still gained 26 percent in the past year. Copper reached a record $4.04 a pound in May after labor disputes and mine accidents led to supply disruptions.
  2. It's only going lower.

    Much, much lower.

    Set up your shorts.