Copper dipped on Monday as the dollar firmed and inventories of the metal rose, but investors were cautious ahead of a US Federal Reserve announcement this week that they hope will clarify the future of the bank's stimulus programme. The aluminium price also fell, touching a one-month low, after a heavy market surplus pushed up inventories monitored by the London Metal Exchange (LME) to a fresh record high.
Metals trading has been fairly range-bound ahead of a Fed meeting that ends on Wednesday, when its chairman is expected to indicate the economy is still performing too poorly to justify slowing the pace of its $85 billion-a-month bond buying right away. "With the meeting and Fed Chairman (Ben) Bernanke's subsequent press briefing casting a shadow over the financial markets, the base metals are likely to remain in a holding pattern until Bernanke's comments are digested over the course of Wednesday evening," Standard Bank analyst Leon Westgate said.
And with a G8 meeting that is focussed on taxes and Syria and unlikely to throw out too much in the way of metal-moving headlines, it seems likely that technical trading patterns will govern price direction until Bernanke speaks, he said in a research note.
Three-month copper closed at $7,082 from $7,085 on Friday. It initially rose more than 1 percent on Monday as some investors covered short positions, but gains fizzled after LME stocks in copper increased by 11,400 tonnes, reminding investors of an expected surplus this year.
News that India's top copper smelter had reopened on Sunday, after complaints from residents forced a two-month shutdown, helped underpin copper. Hedge funds and money managers, however, turned more negative on the copper market in the week to June 11, increasing net short positions in copper futures and options for the first time in four weeks and by the most in more than six months.
The aluminium sector, burdened by overproduction, was jolted on Monday when LME data showed an inflow of 59,600 tonnes of stocks into warehouses, which sent the total to a new record of 5.28 million tonnes. LME three-month aluminium fell 1 percent to a session low of $1,832.50 a tonne, the weakest level since May 15. It closed at $1,844.50 from $1,851 on Friday.
Aluminium has shed 11 percent this year, and analyst George Adcock at broker Marex Spectron in London said investors were continuing to add short positions, expecting further losses. "A fundamental commodity investor would be finding the current environment very challenging, but quantitative flows and investor sentiment are driving the market, and those who are able to successfully gauge these are doing very well," he said. In other metals, zinc closed at $1,858 from $1,860 a tonne on Friday, lead at $2,108.50 from a last bid of $2,108, tin at $20,400 from $20,395, and nickel at $14,290 from $14,325.
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