Copper futures in New York ended down on Friday after light profit-taking erased early gains notched on the back of new record lows in the dollar and quarter-end investment buying. Analysts said they did not expect any change in the near-term for the prospects of commodities denominated in the US currency, copper included.
"It's all a reflection of the dollar," said Steve Platt, analyst with Archer Financial Services in Chicago. "I think there are some real concerns that we're kind of moving into a 1970's type inflation atmosphere, and those kinds of fears are what's underlying all of these markets."
Copper for December delivery ended down 80 cents, or 0.22 percent, at $3.64 a lb on the New York Mercantile Exchange's COMEX division, trading between a $3.6260-$3.6980 session range. Since the middle of August, the benchmark December contract has rallied over 21 percent. Its high so far has been $3.7020 a lb, set on July 23.
Analysts said recently the $4-a-lb mark, which COMEX copper last breached in May 2006, could no longer be an illusion if the December contract broke the current key psychological resistance of $3.71 on the weakness of the dollar. The dollar fell to a new record low against a basket of major currencies and against the euro on Friday after tame inflation data backed views the Federal Reserve would cut interest rates again to shore up economic growth.
US consumers boosted their spending at the strongest rate in four months during August and core consumer prices posted their smallest year-on-year rise in 3-1/2 years, the Commerce Department reported on Friday.
Spending, which is the primary fuel for national economic activity, increased 0.6 percent last month, well ahead of Wall Street analysts' forecasts for a 0.4 percent gain and up from a 0.4 percent rise in July. Incomes rose 0.3 percent in August, down from a 0.5 percent July rise. The euro has gained more than 4 percent versus the dollar so far this month and around 5 percent during the quarter.
Last week, the Fed slashed official interest rates by a half percentage point in an effort to cushion an expected slowdown stemming from the US mortgage meltdown that may pose a threat to the broader economy.
"There's going to be a point where you can never avoid biting the bullet. I don't think the Fed is stepping in that direction right now, and the longer it takes to do, the harder the adjustment has to be," Platt said.
Looking ahead, the market will watch developments in Peru where unions at Southern Copper's Cuajone and Toquepala mines in Peru and the Ilo smelter plan to walk off the job on Tuesday, October 2.
Southern Copper, a major producer, is controlled by Grupo Mexico, whose Cananea copper pit in Mexico has been plagued by a two month-long strike. London Metal Exchange (LME) copper warehouse stocks fell by 175 tonnes 130,775 tonnes on Friday, wile COMEX copper stocks were unchanged at 20,115 short tons on Thursday. In Shanghai, data showed inventory levels drop 15 percent to 47,791 tonnes in the week ended Thursday, from 55,981 tonnes the previous week.