LONDON: Copper prices eased on Wednesday as the higher dollar prompted profit-taking, but low inventories and optimism about demand prospects due to stimulus and growth supported sentiment.
Benchmark copper on the London Metal Exchange was down 0.2% at $8,390 a tonne at 1703 GMT. Prices of the metal used widely in the power and construction industries hit a nine-year high at $8,437 a tonne on Tuesday.
“Copper inventories are low generally. Normally in China there would have been a build-up before the New Year holiday, but that didn’t happen”, said ING analyst Wenyu Yao.
“The reflation narrative has taken hold and that could be reinforced by a decision in the United States to press ahead with large stimulus.”
A higher US currency makes dollar-denominated commodities more expensive for holders of other currencies, which would subdue demand.
Stocks of copper in LME-registered warehouse, at 76,175 tonnes, are up since last week, but still close to last September’s 15-year trough.
Low stocks have fuelled concern about availability on the LME market, creating a premium for cash copper over the three-month contract. The premium rose to a five-month high of $29 a tonne on Monday, and was last around $13 a tonne.
Copper stocks in warehouses monitored by the Shanghai Futures Exchange have fallen 60% since September to below 80,000 tonnes.
“We upgrade our... 6-12 month (forecast) to $10,000 a tonne, based on our updated copper model balances, which point to a deep deficit during 2021 and low inventories for years to come,” Citi analysts said in a note.
US President Joe Biden will travel to Wisconsin on Tuesday to press his case for a $1.9 trillion pandemic relief bill in the political battleground state.
Prices of the soldering metal touched eight-year highs of $24,875 earlier this week as the market fretted about a deficit. It gained 0.6% to $24,400 a tonne.
Aluminium rose 1.4% to $2,115, zinc fell 0.8 to $2,804, lead slipped 0.1% to $2,105 and nickel ceded 0.3% to $18,755 a tonne.
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