BASE METALS: Comex Copper Boosted By Short-Covering, Dollar

By Allen Sykora

Of DOW JONES NEWSWIRES

Copper rose largely on short-covering Wednesday, as traders who previously sold were buying to unwind positions on a day that Chinese manufacturing data remained constructive and the dollar was on the defensive.

The market also got a technical bounce after holding support at the mid-August low earlier in the week.

Most-active December copper rose 9 cents to settle at $2.8190 a pound on the Comex division of the New York Mercantile Exchange.

Some observers said the metal may have been oversold on the recent correction lower, based on oscillators such as Stochastics.

"This is classic short-covering," said Ira Epstein, director of the Ira Epstein division of The Linn Group. "I don't see a trend change."

Some of the strength also may have been end-of-the-month "window dressing," he added.

Epstein and Sterling Smith, commodity trading adviser and analyst at Country Hedging, said dollar strength was one of the main catalysts for copper's rise. Shortly before the copper pit closed, the euro was up at $1.4658 from $1.4573 late Tuesday.

Analysts also commented that the metal's firmer tone really began during trading in China ahead of an eight-day national holiday that begins there Thursday. Traders covered short positions, some encouraged when the country's September Purchasing Managers Index reading of 55 showed economic expansion for the sixth straight month, said a report from RBC. The bank also cited a slight drawdown in weekly Shanghai Futures Exchange copper inventories, released two days early ahead of the holiday.

Technically, copper bounced after holding the lower end of its range from the past two months, said John Gross, publisher of The Copper Journal. Since Aug. 4, the December futures have been no lower than $2.6600 on Aug. 19 or higher than $2.9895 on Aug. 28.

"We hit the lower end of that range Monday [with a low of $2.6625], and the market held," Gross said. "Yesterday was a sideways move and today we're bouncing."

Thus, short-term technicals are supportive. However, Gross said, the market is ignoring continued increases in exchange warehouse inventories.

"During the month of September, they were up [a combined] 46,096 tons," Gross said. "Inventories have been moving higher each week for the past four or five weeks. But the market seems to be ignoring that and seems to be taking its cue from the overall weakness in the dollar."

December copper peaked at $2.8285, its strongest level in a week. Still, a key technically will be whether it can get above $2.83 and $2.8950, Epstein said. The first level is the average of the last 18 closes, while the latter is just above the Sept. 22 high of $2.8920.

"In order for the market to say it has hit a trading-bottom low in the $2.66 area, we probably have to get over the $2.8950 area," Epstein said. "Without that, this is a short-covering rally and not a trend change yet.

"If you clear $2.8950, you're going to make people say $2.66 was too cheap on the break. But until that occurs, I think there's willing sellers still at the $2.83 level."

The day's main U.S. economic reports were mixed for copper.

Initially, support came from a report on second-quarter gross domestic product that was slightly stronger than forecast, Smith said. The government listed a fall of 0.7%, when the expectation was for a 1.2% contraction.

Copper later pared its gain after the September Chicago Purchasing Management Index fell to 46.1 from 50.0 in August. The forecast had been for a rise to 52.5. Following this, the Dow Jones Industrial Average traded lower by triple digits. The stock market returned to slightly positive territory by the time copper closed, and copper in turn threatened its session high.

Yet another closely followed report showed that private-sector payrolls fell 254,000 during September, according to a data issued by payroll giant Automatic Data Processing Inc., or ADP, and consultancy Macroeconomic Advisers. The forecast was for a fall of 240,000.

Inventories of copper stored in London Metal Exchange warehouses rose 1,425 metric tons Wednesday, leaving them at 345,650 tons. The most recent Comex inventory data, released late Tuesday afternoon, were up 12 short tons at 53,645 short tons.

Weekly data from the Shanghai Futures Exchange showed that copper stocks there fell 1,970 metric tons to 96,719 tons.

 
Copper settlements (ranges include electronic and pit trading): 
December    $2.8190; up 9.00c; Range $2.7135-$2.8285 
March       $2.8315; up 8.90c; Range $2.7270-$2.8390 
 

-By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com

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(END) Dow Jones Newswires

September 30, 2009 13:50 ET (17:50 GMT)


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