Copper Falls as Chart Signals Investors Should Sell; Zinc Drops

Copper Falls as Chart Signals Investors Should Sell; Zinc Drops
By Chanyaporn Chanjaroen
Feb. 20 (Bloomberg) — Copper fell in London, snapping three days of gains, as a technical chart used by some investors signaled they should sell.
Copper’s 14-day relative strength index climbed to 71 yesterday. A reading above 70 indicates prices may be poised to decline. The index last rose above 70 on Oct. 3 and prices slid 1.2 percent the next day.
The rally “has been overdone,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by telephone. Power cuts in China reduced aluminum and copper output and attracted “a lot of speculative interest in the market,” driving prices beyond what would be justified by supply and demand, he said.
Copper for delivery in three months fell $45, or 0.6 percent, to $8,145 a metric ton as of 5:04 p.m. on the London Metal Exchange. It earlier lost as much as 1.9 percent. The contract closed at $8,190 yesterday, the highest since Oct. 5.
Copper has risen 22 percent this year on speculation that power shortages in producing nations including China and Chile may curb supply. Stockpiles of copper tracked by commodity exchanges in London, New York and Shanghai have dwindled to 181,494 tons, the lowest since October 2006.
This year’s 30 percent decline in LME-monitored copper stockpiles has contributed to a rise in borrowing costs. Buyers of copper for next-day delivery paid a daily rate of $2 a ton yesterday, compared with a discount of $1 at the start of the year. The spread between so-called cash price and the three-month was at a premium of $83 a ton, the highest since August 24.
Declining Stockpiles
LME-monitored inventories dropped 1.9 percent to 137,625 tons today, the lowest since Oct. 11. Exchange data showed one firm held between 50 percent and 79 percent of LME stockpiles of copper, lead, tin and zinc, as of Feb. 18. The company or companies aren’t named.
Less copper in warehouses doesn’t mean there is a shortage, Smith said. “Copper is not massively tight in the physical market,” he said.
Copper production fell 150,000 tons short of demand in the first 11 months of last year, the International Copper Study Group said today in an e-mailed statement. In November, supplies surpassed demand by 25,000 tons, the Lisbon-based group said.
The U.S. housing market, where copper is mostly used in plumbing and electrical wires, is showing few signs of recovery.
U.S. housing starts remained near their lowest since 1991 in January, a sign the deepest real-estate recession in a quarter century will continue to weigh on the economy this year, Commerce Department data showed today.
Aluminum rose $12 to $2,884 a ton.
Among other metals traded on the LME, nickel fell $100 to $28,100 and lead added $100 to $3,270. Tin added $150 to $17,200 and zinc lost $38 at $2,407.
To graph technical gauges for copper: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
/Last Updated: February 20, 2008 12:13 EST/