Copper Falls as Rebounding Dollar Erodes Investment Demand for Commodities

Copper fell in New York and London as the dollar strengthened, reducing demand for commodities as an alternative investment.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, rose as much as 0.8 percent. A stronger U.S. currency also makes dollar-priced metals more expensive in terms of other monies. A report today may show that production growth in the U.S., the world’s second-biggest copper consumer after China, was unchanged in September.

“The dollar moves seem to dwarf the other factors at the moment,” said Eugen Weinberg, an analyst at Commerzbank AG.

Copper for delivery in December dropped 3.4 cents, or 0.9 percent, to $3.805 a pound at 8:02 a.m. on the Comex in New York. Copper for delivery in three months slid 0.5 percent to $8,360 a metric ton on the London Metal Exchange. All of the six main metals traded on the LME fell except aluminum.

Comex copper advanced for a fifth straight week last week, touching a 27-month high as the dollar index posted a fifth weekly retreat. The U.S. currency slumped on speculation that the Federal Reserve may engage in more asset purchases in an effort to stoke the country’s economy.

“The recent price increase was rather a ‘dollar weakness’ than a ‘metals’ strength,’” Weinberg said.

Comex copper’s 14-day relative strength index, a gauge of whether a commodity is overbought or oversold, was at 66.5 after last week rising above 71. Some analysts and traders who study technical charts view readings above 70 as a sign that prices may be poised to fall.

‘Overbought Territory’

“The complex, with the exception of aluminum and nickel, ended the week in overbought territory, as indicated by their daily relative strength indices,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a report today. “We remain positive toward the sector, although” prices may fall for now, the bank said.

Output at factories, mines and utilities in the U.S. increased 0.2 percent for a second month, according to the median forecast of 62 economists surveyed by Bloomberg News. Gains have cooled from the 0.5 percent average monthly advances in the first half of the year. The Federal Reserve report is due at 9:15 a.m. in Washington

Figures due tomorrow may show that U.S. builders broke ground on 580,000 homes at an annual rate in September, down 3 percent from the previous month, according to a Bloomberg News survey of economists. Construction accounts for a quarter of copper demand, according to the Copper Development Association.

Shanghai Inventories

Copper also fell as Chinese consumers shied away from purchases after prices climbed and amid rising domestic stockpiles. Inventories tallied by the Shanghai Futures Exchange gained for a second week to a six-week high of 103,510 tons last week, according to data provided by the bourse. That’s the highest level since the week ended Sept. 3.

LME copper stockpiles declined for a second day, slipping 0.2 percent to 370,450 tons, daily exchange figures showed. Orders to draw copper from LME stocks, or canceled warrants, fell 1.6 percent to 22,700 tons.

Hedge-fund managers and other large speculators decreased their net-long position in New York copper futures in the week ended Oct. 12, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, fell by 331 contracts from a week earlier.

Tin for three-month delivery on the LME fell 1 percent to $26,450 a ton. Prices reached a record $27,338.50 on Oct. 14. The metal has jumped 56 percent this year, leading advances on the exchange, after production was disrupted in Indonesia and the Democratic Republic of the Congo.

Nickel dropped 1.3 percent to $23,725 a ton and lead declined 1 percent to $2,400 a ton. Aluminum gained 0.2 percent to $2,381.25 a ton and zinc dropped 1 percent to $2,400 a ton.