U.S. Demand Concerns Hit Copper


"Despite quick slump, analysts are bullish on copper's long-term view."

Fears that the economic recovery is about to stall caused bellwether copper to fall its most in five weeks. Concerns over the U.S.' economic health were resurrected on reports of a bigger-than-estimated slump in U.S. home sales.

Building and construction comprise nearly half of copper's demand. Purchases of previously owned homes plunged 27.2% to a 3.83M annual rate. Economists' median forecast was 4.65M.

Adding further momentum to copper's swing is a climbing greenback, which shied away international purchasers. Futures ended sharply lower Tuesday, with copper for September delivery declining $.05, or 1.53%, to close at $3.241/lb. on the COMEX.

The markets will wait with baited breath for more data to provide clues on the pace of the recovery. This Friday, GDP numbers will be released. LME copper stocks rose for a second day running, jumping 1,625 tons to 403,825 tons. Overall, stocks are still down some 150,000 tons since a mid-February peak, in part because of strong buying from top consumer China.

Copper was not the only commodity taking a beating. "General fears of continued economic weakness are causing traders to sell a lot of commodity-based assets," said Fain Shaffer of Infinity Trading Corp. The S&P GSCI Spot Index of raw materials slid as much as 1.9% to the lowest intraday level since July 13.

Despite the metal's quick slump, analysts are bullish on the long-term view of copper. Credit Suisse analysts believe copper could soar to $10,000/ton in 2012, as China steps up copper purchases in 2011 and other countries return to normal demand. The forecast is supported by supply and demand; inventory has been declining nearly all year, even though right now the seasonal summer demand lull should mean that we are restocking, not drawing down, copper.

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