Copper futures dropped to a new low in a month yesterday as the prospect of rising bank interest rates in the US and the strengthening of the US dollar combined to erode the commodity's appeal as an alternative investment.

Copper for delivery in August fell to its daily allowed limit on opening to 63,280 yuan (US$7,980) a ton yesterday, slipping 3,340 yuan (US$418) or 5 per cent from last week's settlement price. The metal price stayed at that level throughout the trading session.

It was the sharpest fall since prices for things like oil, copper and aluminium began to decline in mid-May; then, a ton of copper cost more than 85,550 yuan (US$10,700).
"The recent slump is basically related to a strengthening US dollar," said Li Rong, a copper analyst at Great Wall Futures Co.

The dollar gained 2.2 per cent against six major currencies in the last month as the Federal Reserve in the US suggested it will continue to boost interest rates to counter inflation.

As a result, investors have withdrawn some of their cash from commodities, amid pressure imposed by the strengthening US dollar on almost all commodities, Li said.

"When the copper price exceeds US$5,000, the fluctuation basically has nothing to do supply and demand but is caused by fund liquidity," Li added.

He said speculators have been attracted to copper by forecasts that demand will exceed production and also in a bid to get away from stocks and bonds.

He also anticipated that the price swing may last for two or three months, saying such a period often follows a big price jump.

The price of the metal on the exchange  China's only exchange trading metal and energy contracts  has seen four weekly declines in a row.

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