Risk Aversion Hits Copper


"Looking forward, analysts and traders foresee resilient metals prices."

On Tuesday, copper fell for the first time in four sessions as the USD gained strength, and concerns resurrected over the economic recovery and stability in the eurozone.

European shares slipped and the euro fell broadly after a recent stress test brought to light that Deutsche Bank AG and other German lenders must raise about US$134 billion to reach an estimated 10% Tier 1 capital ratio, a key measure of financial strength. Adding to concerns over the eurozone's recovery, reports surfaced that Europe's largest economy's recovery is losing momentum. German factory orders, adjusted for seasonal swings and inflation, declined 2.2% in July from June—their biggest drop since February 2009.

As concerns over Germany's recovery spread, the greenback witnessed a rally. The U.S. Dollar Index added as much as 0.8%—the most since August 20. Gains by the dollar make raw materials priced in the currency more expensive in terms of other monies. Benchmark copper for three-month delivery on the LME closed down from Monday's close at $7,705/ton to $7,629/ton, after bouncing back from a session low of $7,496.25/ton. Copper hit a four-month high of $7,750 on Friday, as investors bet on improved demand following better-than-forecast data in the United States, the world's largest economy.

Looking forward, analysts and traders foresee resilient metals prices. U.S. demand could be supported by President Barack Obama's promise to invest $50 billion in road, rail and runway infrastructure as a means to boost employment. In addition, Obama plans to help businesses update their infrastructure and equipment by allowing them to write off 100% of their spending into plant and equipment upgrades. Another supporting factor is that the quantity of metals demanded from China may increase as the nation renews its push for energy efficiency.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe