London copper futures drifted lower on Tuesday ahead of a welter of US economic data that could hint at the longer term outlook for US interest rates and influence the direction of commodities markets. Copper at the London Metal Exchange, often seen as a good gauge of real economic activity, closed at $8,540 per tonne, down $110 or 1.3 percent from Monday's close.
The copper market was underpinned by a strike in major producer Chile, but the performance of the US dollar was more of an influence on trading sentiment, analysts said. A two-day Federal Reserve meeting was due to start later on Tuesday.
"I expect a quarter point cut from the Fed ... which means the dollar may stay relatively strong and probably cap further gains in base metals at least for the next couple of days," economist John Kemp at Sempra Metals told Reuters.
Many analysts expected the US central bank to trim its funds rate by 25 basis points to 2.0 percent and signal a desire to hold rates there for the time being. "While a 25 basis points cut is priced in, any signal that the Fed Fund rate may stabilise could spark a rally in the US dollar, which would have a negative effect on base metals," analyst Daniel Hynes at Merrill Lynch said.
Dealers kept a close eye on the US currency as a firmer dollar makes metals more costly for holders of other currencies. "The market is consolidating ahead of the US rates decision and lower price levels are likely to be in view of any further strengthening of the dollar," an LME trader said.
However, supply concerns particularly in tin and copper, where there are strikes in both Chile and Mexico, prompted supportive buying, he added. Copper is up around 27 percent since the start of the year, and is only $300 below the all-time high of $8,880 it hit earlier in April.
A strike at Chile's Codelco, the world's leading copper producer, has idled its Andina and Salvador divisions, so far causing a loss of around 19,000 tonnes of copper against an annual world market of around 18 million tonnes. Also, Grupo Mexico said no date was set to resume copper production at the giant Cananea mine after a nine-month-long strike had been ruled legal.
LME tin ended at $23,705/23,710 per tonne versus Monday's $23,900, down from April 24's record $24,600 when worries about supply from Indonesia peaked. Aluminium was down $48 at $2,964 per tonne, zinc was at $2,239/2,240 against $2,300, nickel fell $640 at $28,650 and lead eased to $2,735 from $2,765/2,770. In industry news, diversified miner Anglo American said copper production rose 9 percent in the first quarter of 2008.
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