The Hindu Business Line : Copper collapses despite tight supplies

It could no more hold on as prices fell below the psychological $3,100-a-tonne mark on Thursday driven by the strength of the dollar, which rose to a six-month high against the euro.

Interestingly, nickel has been largely unmoved and has remained largely supported, diverging markedly from the rest of the base metals complex over the past month. After the second ring in London on Friday, 3-month copper was quoted at $3,040 a tonne, down $56 over Thursday's close.

Analysts believe that the movement in copper reflects the large involvement of macro funds, trading copper on the basis of its negative correlation to the dollar. It is possible that copper is oversold.

Like the nickel market, the copper market is tight with total reported inventories below the critical lows.

However, dollar strength, recent deliveries of copper into China, and discouraging demand growth numbers published by the International Copper Study Group earlier this week, have combined to fuel the bears, an analyst said.

Despite this, copper availability in the Chinese market remains tight with consumer stocks overall low.

Consumers are interested in buying on price dips. The slew of positive economic data released recently has had a negative impact on base metal prices due to a stronger dollar.

Technical analysts see the break below $3,095 a tonne as serious. However, fundamentals suggest a more positive picture. Weakening prices provide the time to buy, according to Barclays Capital.

Reuters reports: Zinc eased $2 to $1,228/31 and lead was off $14 at $920/25, while tin fell $40 to $8,200/125.

Nickel was $175 down at $16,625/700, but sentiment remained firm due to tight supply and dwindling LME stocks. The cash/threes backwardation was holding at $1,050/1,150, the highest since 1989. Nickel stocks fell another 84 tonnes to 4,944, the lowest since July 1991.

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