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Comex copper backtracks in range as Fed meets

NEW YORK: Comex copper ended lower Tuesday, continuing to slop around in a range as the Federal Reserve opened two-day talks on interest rates and a supercharged economy in which base metals have prospered.

"It's just in kind of a choppy period at the moment," said William O'Neill, director of futures research at Merrill Lynch.

"I hear more talk about interest rate and stock market concerns than I do about copper fundamentals," he continued. "I think those two factors have put a little bit of a short term damper on psychology."

Active March copper nearly halved Monday's gain, ending 0.65 cent easier at 84.30 cents a lb. It traded at 83.55 off a high of 85.40 cents. Spot February copper fell 0.70 cent to 83.70 and May lost 0.65 settling at 85.30.

The Federal Open Market Committee began deliberating amid signs of economic overheating. It is widely expected to hike the key short-term rate under its control, the fed funds rate at which banks make overnight loans to each other, by 25 basis points to 5.75 percent.

A more aggressive 50-basis point adjustment is considered less likely, even though recent data show the U.S. economy expanded at a blistering 5.8 percent annual rate in the fourth quarter, while wage and price pressures rose.

Tuesday data from the National Association of Purchasing Management showed manufacturing activity remained brisk in January.

The NAPM said its key manufacturing index stood at 56.3, off slightly from December's revised 56.8 reading but still showing robust expansion in the sector.

Economic growth is keeping demand for industrial and construction materials like copper strong. The charts are also pointing upwards for March copper, which hit a contract high of 88.50 cents on Jan 20 and has since been consolidating.

"Nobody is willing to press this thing lower under the idea that most dips are being viewed as buying opportunities by consumers for the long haul," said David Meger, metals analyst at Alaron Trading in Chicago.

"But the problem remains from a technical standpoint that the market was a little overbought, hence the reason for the trade to the downside," he said.

Base metals have been rallying since late last year. Nickel rose to a four-year peak on the London Metal Exchange on Tuesday and aluminum finished bullishly as well.

But LME copper retraced session gains, diving in the afternoon to close down $12 at $1,856 a tonne.

An abundance of visible copper supply might be an impediment to significant gains for the metal, dealers said.

LME copper warehouse stocks were down 3,875 tonnes on Tuesday at 807,025 tonnes, but remain near record high levels from a big build up last week. The drawdown, the second in a row, encouraged some buying in the morning.

Comex inventories on Monday rose 96 short tons to 95,587 tons.

Estimated final volume for Comex copper on Tuesday was 16,000 contracts, compared to Monday's final volume of 11,514 contracts.

The nine-day relative strength index for March copper fell to 41 from a nearly-neutral 49 on Monday.

Technical analysts usually interpret an RSI reading of 70 or higher as indicating overbought conditions and 30 or below as oversold.-Reuters