Prices of copper dropped over 2.0% today from 6,650 USD to 6,500 USD per ton. Copper lost over 4.0% this week reducing its annual gain only to 4.3%. The market does not expect much from the plan by five central banks to inject money into the financial system. Such move is not expected to avert slowing global economic growth.

Demand for copper in the US and Europe is also slowing down. Inventories of the brown metal are growing. Stockpiles of copper, tracked by London Metals Exchange, have increased by over 18.% since October. That amounts to 4.7 days of global consumption, lower than the yearly average of 4.9 days.

It needs to be noted that much of the price dropdown is caused by hedge funds. Copper is a known commodity used by hedge fund in their investments. The current situation is the effect of the price pumping since the beginning of the year. Nowadays, prices are just coming back where they should have been. It is very probable that prices of copper will stay above the 6,000 USD per ton level. Although the situation of the US housing market is pretty bad, the effects of the interest rate cuts should be seen in the next two quarters. Improving US housing market should boost demand for the brown metal.

Adam Narczewski