US copper futures settled at their cheapest levels in ten months on Friday as broad-based liquidation pressure hit the base metals complex partly tied to reports of heavy losses at a London-based hedge fund, traders said.
"I think it could have been a part of it. Maybe just one of the numerous catalysts today," said one futures commission merchant. "It's Friday and we have seen some good moves recently, so it kind of looked like a flock of birds kind of thing," he added.
Copper for March delivery ended down 10.75 cents, or 4.2 percent, at $2.4230 a lb on the New York Mercantile Exchange's Comex division, its lowest close since April 4. Trading ranged from an overnight peak at $2.5465 to $2.3850, its cheapest level since March 30. Adam Sarhan, founder of GlobalMacroResearch.com in New York, believed the bears were clearly in control of the market amid a downtrend that has erased nearly 16 percent from the March copper contract since the beginning of the year.
"We would definitely not try to catch this falling knife," Sarhan said, pegging the next area of support at around the highs seen last February at $2.3390 a lb. Spot February copper tumbled 10.80 cents to $2.41, while deferred or back month contracts closed with losses ranging from 5.05 to 10.75 cents. Final estimated copper futures volumes reached 7,000 lots, compared with the 11,624 lots recorded on Thursday.
Some investor nerves may have been frayed Friday, following a report in the Wall Street Journal that claimed hedge fund Red Kite suffered a roughly 20 percent loss in the first few days in January and that the company was now trying to stall investors who want to pull their money out.
However, analysts noted the downtrend in copper futures had already been firmly established and that the news of the hedge fund losses did not create the sell-off seen on Friday.
"I have seen some pretty good speculative interest that had not really participated in the upside, but came back in more toward the sell-side. I think they were a little weary of the market to some degree when it was really moving sharply higher, but once valuations were so high and they started seeing the adjustments on both the supply and demand side, things started to fall into place in terms of being short," said Steve Platt, market analyst with Archer Financials in Chicago.
"The market is searching for a bottom and so far, until that selling really dries up and you get some better demand, which in the absence of a strong housing recovery, might not be very quick, is limiting the level of underlying support," Platt added.
London Metal Exchange copper stocks fell by 850 tonnes to 215,250 tonnes on Friday. Despite the draw, LME inventories were still up nearly 5,000 tonnes for the week. Comex stocks rose by 200 short tons to 36,169 short tons on Thursday. Copper inventories monitored by the Shanghai Futures Exchange fell to 23,998 tonnes from 24,071 tonnes the week before.
Further pressure was seen from the strength in the dollar after US payrolls data showed moderately healthy job growth but did not make the case for a near-term change in interest rates. LME three-months copper ended down $270, or 4.8 percent, at $5,330 a tonne, after sinking as low as $5,250 earlier in the day.
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