Copper bounces back on soft dollar and tight supply

Dollar weakness and increasing supply tightness boosted copper prices on the London Metal Exchange (LME) on Tuesday, dealers said. Benchmark copper rose by just over two percent to finish the evening kerb session at $3,026 a tonne, up $65. "Copper's still-strong underlying fundamentals are supportive," said Angus MacMillan, metals strategist with Bache Financial Ltd.
Base metals were hit hard one week ago when a resurgent dollar hacked some nine percent off prices in just one session, batting copper away from October's near-16-year peak at $3,175.
Some traders said the latest rise had also been aided by the temporary closure of the LME's electronic trading system Select during the afternoon, but noted volumes were generally thin throughout the day.
Copper supply tightness, exacerbated by steadily dwindling exchange stocks, has attracted buyers back into the market.
The cash to three months spread in copper flared to $151/161 - its highest since $185 back in April and compared with $100 at the start of the year.
"We're still looking at a market in deficit well into the second half of the year and I think it is going to get really tight," MacMillan said.
"We'll see a lot of play on the spreads and I wouldn't be surprised to see the backwardation at $200/250."
Stocks of copper in exchange warehouses around the world are now down by over 80 percent compared with January 2004, standing at just 129,333 tonnes as of January 7.
Alan Williamson of HSBC Bank said in a 2005 outlook that further price rallies could not be ruled out due to low stock levels that made copper especially vulnerable to any significant supply disruption.
That was also the case in lead and nickel markets.
"The funds remain favourably disposed towards metals, not least because of expectations of further dollar weakness and apparent strong demand from China," Williamson said.
"The recent dollar rally has provided a renewed buying opportunity."
Traders were bracing for potentially volatile moves on Wednesday when US trade data for November will be released.
Other metals were boosted by copper. Aluminium added $25.5 to $1,835.50 a tonne, while lead finished at $910 from $896.
Three months zinc was $13 higher at $1,230, while tin was $25 firmer at $7,825. Nickel rose $200 to $15,100.