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Copper Prices Fluctuate Amid US Debt Deal, Stronger Dollar

Strategic Insights

— 1 min read

Copper futures experienced a relief rally after US lawmakers reached a deal to raise the national borrowing limit, but the gains were short-lived as a stronger dollar and concerns over the agreement's long-term impact curbed prices. As the US debt deal took shape, copper prices surged, only to pare their gains as traders took a closer look at the agreement. Analysts remain cautious, with some questioning the deal's effectiveness in preventing a US credit downgrade.

Key Takeaways:

  • Copper futures were near flat on Monday, with the September contract down 1.75 cents, or 0.4%, at $4.4620 a pound on the Comex division of the New York Mercantile Exchange.
  • The stronger dollar dampened demand for dollar-denominated copper futures, with the euro recently trading at $1.4358, down from $1.4391 late Friday in New York.
  • Analysts at Barclays Capital described the US debt deal as a "band-aid approach" to government finances and warned it does not preclude a US credit downgrade.
  • Two credit ratings agencies, Standard & Poor's and Moody's, have put America's AAA credit rating on review amid the debt limit crisis.
  • Production disruptions at the world's largest copper mine, BHP Billiton Ltd.'s Escondida mine in northern Chile, remain a source of support for copper prices, despite the temporary idling due to a worker strike.
  • Copper mine production has struggled to keep up with growing demand for the red metal in recent years, and many analysts forecast a slight shortfall in supply for this year.

Statistics:

  • Copper prices were down 1.75 cents, or 0.4%, at $4.4620 a pound.
  • The euro traded at $1.4358, down from $1.4391 late Friday in New York.
  • The US debt deal aims to reduce the national debt by about $2.4 trillion over ten years.
  • Copper mine production has struggled to meet demand in recent years, with many analysts forecasting a slight shortfall in supply for this year.

Sources:

  • Dow Jones Commodities News via Comtex (Aug 01, 2011)
  • Barclays Capital (as quoted in Dow Jones Newswires)
  • Standard & Poor's (as quoted in Dow Jones Newswires)
  • Moody's (as quoted in Dow Jones Newswires)
  • Dow Jones Newswires; Tatyana Shumsky; 212-416-3095; tatyana.shumsky@dowjones.com
  • Copyright (c) 2011 Dow Jones & Company, Inc.

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