If Baja were producting now, the hedge would prove to have been a very prudent move.
Wed May 11, 2011 2:39pm EDT
* Copper hit by growth concerns in top buyer China
* Data signals less chance of further Chinese tightening
* Copper down in correction of overall uptrend
* Coming up: U.S. April retail sales data on Thursday
(Recasts, adds New York dateline/byline, updates prices, adds analyst
comments)
By Chris Kelly and Pratima Desai
NEW YORK/LONDON, May 11 (Reuters) - Copper crumbled to its lowest since
December on Wednesday, as signs of a growth slowdown in China signaled
sustained softness in demand from the world's largest metals consumer.
Selling mounted late in New York as a flight-to-safety bid in the dollar
grew and losses across the metals, agriculture and energy markets gathered
pace, nearly wiping out the rebound of earlier this week after last week's
near-record sell-off. [USD/] [COM/WRAP]
The Reuters/Jefferies CRB index .CRB, a broad measure of commodity
performance, fell 2.5 percent, its biggest drop since the plunge in commodity
markets on May 5.
London Metal Exchange (LME) benchmark copper CMCU3 shed $210 or 2.4
percent to close at $8,700 a tonne.
It fell further in after-hours business to $8,630, the lowest since early
December 2010.
In New York, the July COMEX copper contract HGN1 extended losses below $4
per lb to settle at $3.9135 per lb, down 12.85 cents or 3.2 percent on the
day.
Data overnight showed China's industrial output growth eased much more than
expected in April, pointing to a cool-down in the world's second-biggest
economy and less need for further bouts of aggressive monetary tightening.
China's inflation eased in April to 5.3 percent, slightly above the
consensus, but below a 32-month high in March of 5.4 percent, reinforcing
expectations that pressures were peaking and would start to ease in the second
half of 2011. [ID:nL3E7GB0H2]
"I think that the data shows they will be less aggressive in continuing to
tighten. I suspect that they are going to sit and wait and see what they have
done ... to see what effect comes after a month or two," said Dennis Gartman,
publisher of the Gartman Letter.
This view was taken a step further in a Reuters interview with a Chinese
government economist, who said China may cut rather than raise interest rates
over the rest of this year. [ID:nLDE74A0K8]
Even with the copper price in a downtrend, Gartman said he would still not
be short the market.
"I think the time to be long has passed. I am not sure the time to be short
is upon us. I think the time for copper is to do nothing, just like the Chinese
monetary authorities will be doing."
China is the world's largest buyer of copper, expected to account for about
40 percent of global consumption estimated at 21 million tonnes this year.
In another sign of a cooling economy, China's refined copper production
fell in April from March's record 470,000 tonnes, although primary aluminum
production rose. [ID:nL3E7GB0FF]
"The metals production data is showing a picture of a well-supplied
market," Credit Agricole analyst Robin Bhar said.
"China will be in no hurry to come to the market and it's unlikely to this
summer. Maybe we have to put back their return to the market until the third
quarter, possibly going into the fourth quarter."
China's absence from the copper market is reflected in the rising trend in
LME copper stocks, which edged up 25 tonnes to 468,350 tonnes -- their highest
since June 2010 and up nearly 35 percent since Dec. 9. MCU-STOCKS
TREND CORRECTION
Copper breached its 200-day moving average at around $8,758, suggesting
further losses ahead, analysts said.
"If the close confirms that level has been breached then I think we're
going to get further momentum, technical selling off the back of that, and
therefore the low $8,000 level will be the next sort of target," Bhar said.
Even so, some market participants believe the bull market will remain
intact.
"We do not do any damage really until we get below about $8,450, and then
we are still well in the context of a bull market down to about $7,400. That's
how far up we have come and how fast," said Howard Simons, strategist at Bianco
Research Group in Chicago.
"We just got ahead of ourselves in copper. This is not the beginning of the
end of the great copper bull market. It's a correction of the trend."