LME Copper Prices Low as US Dollar Rallies

Collapse of the LME copper prices to one year lows under $8000 per tonne could be the start of a much awaited and much needed correction in the commodity given the rapid deterioration in the global economic outlook in last few months. As the US dollar rallies on safe haven demand, commodities priced in the US currency would invariably take a hit and it looks as if the massive correction in copper could be just the start of a bearish phase similar to 2008, when the commodity came off the all time highs and plummeted in the second half of the year.

The global manufacturing slowdown has continued, wiping out much of gains recorded in 2010. In August, the JPMorgan Global Manufacturing PMI tumbled to its lowest level since June 2009. Manufacturing production contracted slightly- ending a 26-month period of expansion following a further drop in the volume of new orders. MCX Copper fell near vertically after sldiing under Rs 400 per kg mark and closed with a loss of around 12% at Rs 362 per kg.

Copper prices fell on the chin, dropping to near one year lows under $8000 per tonne as equity markets collapsed and the world economy looked headed for a perfect storm after the US Fed as expected, acted to ward off an utterly weak economic recovery and decided to start a program to “twist” the yield curve by swapping shorter-maturity government securities for longer-dated ones. The central bank said that it was acting in view of “significant downside risks to the economic outlook, including strains in global financial markets.” Earlier in the week, the IMF had stated that the global economic recovery has become much more uncertain and policymakers have a difficult, increasingly narrow, line to walk if they are to avoid something very bad happening.

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