Copper eased on Wednesday, weighed down by a firmer dollar, but strong economic data out of the United States boosted risk appetite and helped to pare losses. Copper for three-month delivery on the London Metal Exchange closed at $9,540 a tonne from $9,580 at Tuesday's close. The metal, used in power and construction, touched a record high at $9,754 on Tuesday before starting to soften.
"The strong US data has been very supportive, it gives an added feeling that there is recovery momentum," Societe Generale analyst David Wilson said. "We've seen things come off because of a slightly firmer dollar earlier on but that's definitely been reversed. The good US data has been the key."
US private employers added 297,000 jobs in December, the biggest increase since at least 2001, the private ADP Employer Services report showed. A separate industry report showed the US non-manufacturing sector grew in December at its fastest pace in more than 4 years. A firmer dollar was a driver behind the downturn, traders and analysts said. A stronger dollar makes commodities more expensive for holders of other currencies. Low interest rates and ample liquidity continued to attract investors to hard assets, RBC Capital analyst Alex Heath said.
Investors have sought commodities to conserve value and also as a play on emerging market growth and a recovery in the West. "There is plenty of room still on the upside ... but sentiment can change quickly," he said. Looking ahead, Standard Bank said the two key events likely to govern base metals price behaviour over the coming weeks were the index rebalancing period, due to start at the end of this week, and the February 2-8 Chinese New Year holiday. "As a result, the market is likely to be quite erratic over the next month or so, with an episode of potentially quite intense activity likely giving way to a period of Chinese reticence," it said in a research note.
Lead stocks in LME warehouses hit their highest levels in more than 15 years, data showed. They jumped 1,350 tonnes to 209,900 tonnes, the highest since September 1995. Inventories of the metal have risen since 2008 when recession hit and as demand from battery makers struggled to keep up with growing supplies. "It's pretty amazing to think stocks are above 200,000 tonnes and prices are around $2,500 a tonne. I would expect prices to be $200-$300 lower," one London metals trader said. Metal can be locked away in warehouses under cheap rent and financing deals, which enable metal holders to profit if prices rise faster than storage costs.
Meanwhile, miner Ivernia Inc said it had suspended production at its Magellan mine in Western Australia. The mine was shut down after the Australian government halted lead shipments from the mine at the end of 2010 due to concerns over airborne lead levels in shipping containers.
Lead ended at $2,660 from $2,609 a tonne at Tuesday's close. It earlier hit its highest since January 2010 at $2,675.50. Zinc was at $2,463 from $2,470 a tonne. Aluminium closed at $2,463 a tonne from $2,485. Global X Funds, a provider of exchange-traded funds, on Wednesday launched the first ETF for aluminium, saying demand for the metal is growing. Nickel ended at $24,700 from $25,155, while tin was at $26,225 down from $26,350.
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