Comex copper futures plunged to three-week lows at Tuesdays close, as funds bailed out of positions after a surge in the dollar following upbeat US economic data, traders and analysts said.
Active September copper fell 2.90 cents, or 2.3 percent, to finish at $1.2210 a lb on the New York Mercantile Exchanges Comex division, the lowest mark since July 7, within a session range of $1.2530 to $1.2165.
Spot July lost 2.95 cents to $1.22 and deferred months dropped 2.40-2.95 cents. "The focal point of the copper right now is the demand side of the market which is tied very closely to the relative strength of the dollar to foreign currencies," David Meger, analyst at Alaron Trading, said.
"The dollar was boosted on the back of stronger consumer confidence data and you saw copper demand hurt, hence the fund selling." Softer London copper prices initially pressured the copper market at the open, but heavier selling emerged around late when the dollar shot to five-week highs against the euro.
The Conference Boards consumer confidence index for July rose to 106.1 from a revised 102.8 in June for the fourth straight monthly rise in the private forecasters index. Economists had forecast a reading of 102.0.
"Chalk it up to a stronger dollar after the consumer confidence data this," a copper broker at a futures commission merchant said. Reports on durable goods on Wednesday and gross domestic product on Friday will be the next key tests for the dollar after Fed chief Alan Greenspan said last week recent weaknesses in the economy were transitory.
Interest rate hikes usually boost the dollar and hurt demand for dollar-denominated assets like copper, as they become pricier for traders using foreign currencies. The euro slumped against the dollar to a low at $1.2036, before rising to $1.2041.
Looking to fundamentals, disappearing copper stocks and labour issues have offered support to the market, traders said, two-weeks into a strike at Group Mexico's La Cardiac copper mine, smelter and refining operations.
At Groups giant Cananea open-pit copper mine in northern Mexico, workers voted on Monday to delay a strike vote decision until August 10 as they work with the worlds No 3 copper producer to reach a labour agreement.
Copper inventories are at their lowest in 3-1/2-years in Comex warehouses in the United States, while stockpiles have hit 14-year lows in London Metal Exchange warehouses. LME stocks fell 350 tonnes to 90,050 tonnes on Tuesday.
Comex stocks declined 1,034 short tons to 82,884 tonnes on Monday's report, a level not seen since mid-February 2001. Final estimated volume in Comex copper futures was 12,000 contracts, well above on Mondays 6,603-lot tally.
Open interest dipped 98 lots to 66,495 lots. Brokers trace technical support in September copper at $1.2160 and $1.20, with resistance at $1.2530 and $1.2610.
In LME trade, three-months copper fell $50 to end the late kerb session at $2,664 a tonne.