Copper falls 2.5% on low US demand

Weakening demand from the US, the second largest consumer of copper in autos, homes and appliances, forced the red metal to the second straight weekly drop to close at $6,625 on Friday from $6,801 in the beginning of the week on the London Metal Exchange (LME).

The 2.5 per cent decline on Friday is the second in a row after the red metal slumped by 1.9 per cent last week.

The domestic market followed the LME direction, but the intensity of the decline was comparatively lower probably because of time lag of about 5 days for the LME price movement to percolate to the domestic market. The spot price of copper wire bar in the Mumbai non-ferrous metals market declined by Rs 5 to close the week at Rs 380 a kg. Analysts attributed the decline to the rangebound US consumer prices, which indicate a slowing down of the economy that may curb inflation. Economists had forecast a rise in prices after a 0.5 per cent drop in October.

Copper prices are directly proportional to the US economy, which moves in the latter's direction, an analyst said.

On the comex division of the New York Mercantile Exchange, copper futures price for March delivery dropped 2.35 cents (0.8 per cent) to $3.034 a pound in the early Friday trade, thus giving a direction for the LME to follow.

The red metal prices had gained by 50 per cent this year following labour disputes and mine accidents disrupting the copper supply. The futures prices had reached a record $4.04 a pound in May.

Surprisingly, hinting at a slowdown in the economy, the US core prices, excluding food and energy, were unchanged for the first month without an increase since June 2005. Cheaper clothing, motor vehicles and air fares helped keep prices from climbing, as the slowing economy limits pricing power.

Copper tumbled to its lowest level since June following poor US economic data, with traders likely to keep a sharp eye on inventory levels in the days ahead. Rising inventory is a major cause of concern for falling copper prices.

The week itself added 5,500 tonne of fresh stocks to the already rising stocks at 168,600 tonne, thus taking the total available stocks at 174,100 tonne in the LME-registered warehouses.

Traders attribute this decline to weakness in the US dollar in addition to rising inventories.

Chile exported $2.793 billion worth of copper in November, up 49.7 per cent from $1.866 billion in the same month last year. Chile's copper exports have been boosted over the last year by sky-high prices for the red metal.

Exports during the first eleven months of the year totalled $29.52 billion, up 79 per cent from $16.46 billion. The country is the world's largest source of copper.

China's copper output in November rose 5.5 per cent to 250,600 tonne. Production in the January-November period rose 18.5 per cent to 2.66 million tonne.