20000326Comex copper ends softer on mixed selling

NEW YORK: Comex copper futures finished lower Friday amid arbitrage and liquidation by trade and scattered funds, even as warehouse stocks fell further.

The market was seen consolidating its light gains recorded in recent weeks, sources said.

"Industry inventories are still at very high levels, and I don't see any reason to believe that they will come sharply down any time soon," Peter Ward, senior metals analyst at Lehman Brothers, told Reuters.

Active May fell 0.70 cent to 81.10 cents a lb, ranging 80.90-82.00 cents, while spot March lost 0.65 cent to 80.45 and back months were 0.50 to 0.70 cent softer.

Copper's sudden drop due to record-high warehouse inventories on Feb 28 shaved over three cents from its Comex price, but visible stocks pared their numbers since then.

However, investment funds expected prices to fall further and seemed content to wait to take positions in the market, New York and London dealers said Friday.

"If the (London Metal Exchange) stocks are up, they'll probably come in Monday and sell it off, and if the stocks are lower, they will buy it again," a Comex trader said.

LME warehouse stocks slid 5,350 metric tonnes to 779,150 tonnes on Friday, and Comex stocks fell 368 short tons to 96,048 tons on Thursday.

"Stock drawdowns are starting to disappoint people," said one New York broker. "I guess we're up at these levels because of expectations that stocks will be down."

Ward said he believed "the copper market will be in deficit by 2001-2002 with copper prices rising in advance of this fundamental tightness.

"My one-year view is pretty bullish, but I don't disagree with a lot of the short-term scepticism that's out there," he said'

Ward voiced concern about copper's ability to absorb the inflow of scrap at while the market ranges between prices of 82 to 87 cents. "It's restrained right now, but as prices tick up over the next year, that will be a big head-wind for the copper market to fight."

He said he expected copper prices to hover around 80 cents in the next one to three months, but added that "85 to 90-cent copper a year from now is perfectly reasonable."

Dealers pegged near-term support in May copper at 80.60 cents a lb, corresponding to roughly $1,775 a tonne on the LME, resistance was called at 82.40 cents -- about $1,810 in London.

LME three-months copper finished at $1,780 a tonne, off $2 from Thursday's close, but down $21 from its pre-opening high mark. London copper remained technically vulnerable along with the other base metals, dealers said.

In separate news, Lehman Brothers said Friday that Grupo Mexico's recent acquisition of U.S. company Asarco positioned the Mexican mining giant as one of the world's largest producers of copper and other base metals.

"Grupo Mexico's leverage to copper prices has increased dramatically following the Asarco acquisition," said Ward. "At this point in the copper cycle, we view this leverage favourably."

The nine-day relative strength index (RSI) for May copper fell to 48 on Friday, down from 62 on Thursday.

Technical analysts said that an RSI reading at 70 or higher was usually an indication of overbought conditions, while 30 or lower was oversold.

Final estimated volume was 10,000 contracts against Thursday's official tally of 7,734 lots.

Comex is a division of the New York Mercantile Exchange.-Reuters