US copper futures held at lower levels on the close on Wednesday with technical selling holding sway in a thinly traded market, traders said. They added that numerous bullish factors have kept a support line under red metal prices including a huge drop in London Metal Exchange (LME) inventories.
Signs of strong global demand, supply issues in Chile, and a Federal reserve that seems more concerned by inflation than slowing US growth. Most-active copper for July delivery on the New York Mercantile Exchange's Comex division finished down 4.35 cents at $3.6790 a lb. in technical selling.
It slipped to a one-week low of $3.63 a lb. Comex estimated final volume of 16,722 lots compared with 11,645 lots traded on Tuesday. Open interest on Tuesday rose by 836 lots to 81,613 lots. "There wasn't a tremendous amount of volume and that was why it came off, because of the lack of buying.
The news stories were bullish, with two out of Chile that you would think would push the market up," said a metals dealer. Chile's Coddles, the world's biggest copper minor, said it suspended production temporarily at an underground mine at its Andean division after a rock fall killed a worker.
Andean is the second smallest of Codelco's five divisions, producing around 250,000 tonnes of refined copper a year, or around 14 percent of Codelco's total output. Separately, Up to 28,000 subcontracted workers at Codelco, are threatening to go on strike over pay and work conditions, El Mercury newspaper reported on Wednesday.
The Federal Reserve reported that it held its key interest rate target steady at 5.25 percent for a seventh straight meeting and again said its main worry is that inflation will fail to moderate.
Analysts said the Fed.'s communiqué was seen as constructive to base metals markets because the focus remained on inflation instead of slower growth, suggesting demand for base metals would likely stay strong going forward.
"Inflation is still a concern. The Fed is going to have to make sure inflation is in control before they lower rates," said Bob Mouton, president of Americana Mortgage Group. While the Fed said growth slowed in the first quarter, it still looks for a pickup in economic activity in the second half of 2007.
"Although the Fed has acknowledged the fact that the first quarter's growth has slowed the language remains the same as the previous March 21 statement, which emphasises the inflation risks.
In my mind there is not even a baby step taken toward the direction of cutting rates," said Ken Maryland, president of Clearview Economics. Traders said on Wednesday's selling was a technical correction of the recent fast run up to a near one-year high.
"Technical corrections pose some downside risk, but from a fundamental perspective we remain positive and see scope for further gains in base metals." a Barclays' Capital note said. London Metal Exchange (LME) copper inventories slid 3,675 tonnes on Wednesday to 145,700 tonnes, which helped support London Metal Exchange prices.
Except for a brief dip, London copper prices held above the psychologically potent $8,000 level, which helped buffer declines in the New York market. London Metal Exchange copper for delivery in three-months finished at $8,050 a tonne, down from Tuesday's close at $8,165 a tonne.