Comex copper ended lower on Friday, hit by fears that higher interest rates would slow metal demand, but prices climbed off the lows once analysts surmised that a rate increase would probably be small and its impact minimal, traders said.
Analysts said they thought on Friday strong May US employment report nearly sealed the deal for the Federal Reserve to tighten credit when it meets in late June. But they also thought the robust payroll data depicted a healthy but not explosive labour market, and as a result they expected a rate increase of just a quarter percentage point.
Copper prices, which began sharply lower in anticipation of an even larger rate hike, recovered somewhat after the news. "I think the market had a bit of a selloff, but a pretty substantial close, considering it was down between 300 to 400 points at one time," said Scott Myers, senior trading analyst at Pioneer Futures.
"So, I think this is a pretty good showing and we'll see it back above $1.25 (a lb. on the July contract) next week, with the stock market looking OK," Active July copper ended down 1.45 cents at $1.2315 a lb., in a range that led down to $1.2080 from $1.2440 a lb.
Spot June lost 1.35 cents to finish at $1.2335 a lb. The rest of the board settled from 1.30 cents to 1.50 cents lower. Comex estimated final volume at light 8,000 lots, compared with 7,151 traded on Thursday.
On Thursday's open interest fell by 890 lots to 70,292 contracts. With much of the speculative buying purged from the copper market during the week, traders said they thought the red metal price would likely be more nearly reflecting underlying demand, at least in the near term.
As a result, prices were expected to continue a consolidation phase as participants sorted out where the supply/demand equilibrium would be and how a higher interest rate scenario might impact that balance.
"It was down, but it had a little rally back on the close.
Some traders were troubled that the 5.6 percent unemployment rate did not lessen. Others were encouraged by strong growth in manufacturing jobs. One economist called the 20,000 to 30,000 manufacturing payroll gains over the past three months "pretty significant."
Another predicted "a blow-out" in industrial production. Analysts said the jobs report showed the economy was growing at a self-sustaining pace, but not so rapidly as to cause distortions in the labour force, a ripple that could force the Fed to tighten credit by more than expected.
"These are encouraging numbers for the economy, not too hot or too cold," said Michael Meets, chief investment strategist at Oppenheimer & Co. in New York. On the London Metal Exchange three-month copper ended on Friday at $2,698 per tonne, lower than on Thursday is close at $2,744.
The range low fell to $2,663 from $2,773 per tonne. Comex is a division of the New York Mercantile Exchange.