Copper prices fell on Wednesday, reversing from a two-week high, as the dollar rose sharply and after comments on the US economy by Federal Reserve Chairman Ben Bernanke. Three-month copper on the London Metal Exchange closed at $8,499 a tonne, down from a close of $8,600 a tonne on Tuesday. It hit a session low of $8,535 per tonne and a session peak at $8,695.25, its highest level since February 10.
The metal fell sharply as the euro hit a fresh session low against the US dollar on Wednesday and analysts said testimony from US Federal Reserve Chairman Ben Bernanke suggested the bank was unlikely to engage in more easing in the short term. A stronger dollar makes commodities priced in the dollar more expensive for holders of other currencies. Bernanke also said the uneven US economic recovery will have to pick up in order to quickly bring down an unacceptably high jobless rate. Optimism also faded over new efforts by the European Central Bank to inject more cash to ease the region's debt strains.
Banks snapped up more than 500 billion euros ($668.9 billion) in cheap funding from the ECB, fuelling hopes that more credit will flow to businesses and that government borrowing costs will ease further. Meanwhile, the US economy grew a bit faster than initially thought on slightly firmer consumer and business spending, calming fears of a sharp slowdown in growth in early 2012.
"The US data has clearly been better in recent weeks, there's underlying strength in the US economy. But Europe remains a mess and oil prices are a concern," said Nic Brown, head of commodities research at Natixis. "We're optimistic on base metals, and copper in particular, but we suspect at the minute the price resilience has been expectation rather than reality."
Copper is still on course for a second month of gains in February after hitting a five-month high of $8,765 early in the month. But analysts say demand from top consumer China needs to bounce back to justify the metal moving higher. Soft physical premiums for copper in Shanghai reflect continued weakness in Chinese demand, with a Shanghai-based trader saying premiums for cash copper have slipped to between $40 and $70 per tonne over London prices from around $80 to $90 earlier this month. Copper stocks in warehouses monitored by the LME fell by a further 2,425 tonnes to 296,425 tonnes, a fresh 2-1/2 year low. The ratio of cancelled warrants, material earmarked for delivery, to total stock stood at 31.69 percent, mostly in US locations.
In contrast, stockpiles of copper at warehouses monitored by the Shanghai Futures Exchange remained near 10-year highs despite a drop last week for the first time since early December. China is the world's biggest consumer of metals, accounting for around 40 percent of refined copper demand last year. Demand from the country has been slow to pick up since its Lunar New Year holidays in late January, but some bright spots in economic indicators may help support copper prices.
"The recent improvement in Chinese manufacturing activity coupled with the selective monetary easing stance of the People's Bank of China may help to spark Chinese buying again and provide the needed catalyst for copper to stage the next leg higher," Credit Suisse said in a note.
Supporting copper, Chilean industrial production fell 10.5 percent in January from December and 1.2 percent from a year earlier, hurt by a drop in output in the mining sector. In Indonesia, a stoppage at Freeport McMoRan Copper & Gold Inc's Grasberg mine could be resolved within days, with talks between workers and management progressing well, a union official said on Wednesday. In other metals, lead closed $2,160 from Tuesday's close of $2,255, tin at $23,625 from $24,055 and nickel at $19,255 from $19,755. Aluminium closed at $2,330 from $2,325, and zinc at $2,112 from $2,123.
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