New History Copper Prices on Dollar Rally Commodity Demand

Copper prices rally as commodity demand, Morgan Stanley boosted its 2011 price forecasts for gold and copper, and recommended equities including Xstrata Plc and Kazakhmys Plc, because of expected supply constraints and a weak dollar.

?Accelerating weakness in the U.S. currency, driven by fears of renewed quantitative easing to confront sluggish U.S. growth, is proving to be a boon to commodity markets,? Morgan Stanley metals and mining analysts led by Peter Richardson said. Gains will be supported by ?resilient growth in emerging markets,? they said.

Gold prices are expected to average $1,315 an ounce, 14 percent higher than Morgan Stanley?s previous forecast, and copper $3.80 a pound, up 10 percent. Iron-ore prices are set to trade next year at $135 a ton, unchanged on the bank?s previous forecast, and up from an average $122 a ton for this year.

?Despite some persistent market concerns about the strength of demand for steel-making raw materials in 2011-12, and fears regarding the growth in new capacity over this timeframe, especially in iron ore, our fundamental analysis highlights continued strength in premium products,? Morgan Stanley said.

Seaborne markets will struggle to provide sufficient supply to match anticipated growth in steel production, at least until 2012, it said.

Other companies Morgan Stanley favored were Kobe Steel Ltd., Impala Platinum Holdings Ltd., Tata Steel Ltd., Posco and Fortescue Metals Group Ltd.

Copper prices fell the most in three weeks as the dollar rebounded, reducing the appeal of commodities as alternative investments.

The greenback rose as much as 0.6 percent against a basket of six major currencies. Copper has gained 27 percent since July 1 as inventories dropped and the dollar slumped. On Oct. 1, the metal reached $3.722 a pound in New York, the highest level since July 30, 2008.

?Copper is floating a little on the stronger dollar,? said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. ?We?re seeing some technical profit- taking.?

Copper futures for December delivery slid 2.65 cents, or 0.7 percent, to close at $3.664 a pound at 1:20 p.m. on the Comex, the biggest loss for a most-active contract since Sept. 10.

Stockpiles monitored by the London Metal Exchange rose for the first time in six sessions. Orders to withdraw copper from inventories slid for the ninth straight session, the longest slump since May 11.

The metal may resume its rally, reaching $3.80 in eight to 10 days, McGhee said. Demand in China, the world?s largest consumer, is ?underpinning the market,? he said.

In London, copper for delivery in three months dropped $36, or 0.4 percent, to $8,064 a metric ton ($3.66 a pound).

Lead also fell on the LME. Aluminum, nickel and tin rose, while zinc was little changed.

Copper dropped for a second day as as Japan expanded stimulus measures, weakening the dollar, and on concern that the European debt crisis will be prolonged. Tin traded within 1.2 percent of an all-time high.

Copper for three-month delivery on the London Metal Exchange fell as much as 0.5 percent to $8,022 a metric ton and traded at $8,030 at 3:19 p.m. in Singapore. The December delivery contract on the Comex in New York lost as much as 0.5 percent to $3.646 a pound. The Shanghai Futures Exchange is closed till Oct. 7 for the National Day holiday.

Copper fell as ?a stronger U.S. dollar and concerns that Europe?s major banks are undercapitalized resurfaced,? Mark Pervan, senior commodity strategist at Australia and New Zealand Banking Group Ltd., wrote in a note today.

The dollar strengthened for a second day against a six- currency basket including the yen, before trading little changed. The Bank of Japan cut the overnight call rate target, reducing borrowing costs for the first time since 2008, and policy makers plan to set up a 5 trillion yen ($60 billion) fund to buy state bonds and other assets. A panel appointed by the Swiss government said yesterday that UBS AG and Credit Suisse Group AG should almost double the capital required under Basel III rules.

The economies of Europe, Japan and the U.K. will have trouble picking up, according to Pacific Investment Management Co., which runs the world?s biggest mutual fund. The Federal Reserve will probably increase Treasury purchases to revive a U.S. economy that is almost stalled, Paul McCulley, a portfolio investor at Pimco, wrote on the company?s website.

Cancelled Trades

Aluminum in London fell 1 percent to $2,340 a ton at 3:16 p.m. in Singapore. The London Metal Exchange canceled 220 lots of the three-month contract traded just after the open of its Select electronic trading system at 8 a.m. Singapore time, the bourse?s help desk said by phone. The metal tumbled as much as 3.3 percent from the previous settlement to $2,286 a ton during that 21 second period after the open.

Zinc dropped 0.4 percent to $2,220.75 a ton, lead was 0.6 percent lower at $2,263.25 a ton, and nickel declined 1.2 percent to $23,848 a ton. Tin was unchanged at $25,200 a ton, just $300 off the record $25,500, which was reached May 15, 2008.