Copper declines

Copper fell on Monday as investors paused to re-assess the impact of a new round of US monetary stimulus, although a weak dollar meant the metal's price retained most of the gains from the previous session's climb to a 4-1/2 month peak. Financial markets were euphoric after the Federal Reserve promised on Thursday to pump $40 billion into the US economy every month until it sees a sustained upturn in the weak jobs market.
The European Central Bank had already impressed investors a week earlier by pre-announcing unlimited, albeit conditional, government bond buying to bring down sky-high borrowing costs for struggling euro zone members such as Spain. But some investors were cautious on Monday over the prospects for prolonged growth in industrial metals given slowing activity in China, and that the central bank measures will take time to feed through to the real economy.
Investors were also aware that the global financial reforms are not over yet and that southern Europe has yet to solve its fiscal problems and lack of competitiveness. "The weaker dollar has fed into stronger commodity prices, but it's more a speculative move on inflation expectations rather than any optimism on growth," said CMC Markets senior market strategist Brenda Kelly.
"The ECB is buying time. It will make a difference to future debt, not to existing debt. In the US we've seen an increase in 10 year bond yields... I think they'll be using a lot of this (new money) to pay down existing debt, it won't necessarily feed into growth." Three-month copper on the London Metal Exchange closed at $8,302 per tonne, after touching a high of $8,386.25 earlier - near the 4-1/2 month top of $8,411 hit in the previous session.
LME copper rose 3.8 percent on Friday, its largest daily percentage gain since June 29, and is now up nearly 10 percent on the year. Copper prices were also supported by the dollar, which hovered near a seven-month low versus a basket of currencies on Monday. A soft dollar makes commodities priced in the greenback cheaper for holders of other currencies.
Hedge funds and other big speculators pumped more than $6 billion into US commodity markets last week, the most in three weeks, just before the Fed announced its new round of stimulus, trade data showed on Friday. According to the median of forecasts from a Reuters poll on Friday, the Federal Reserve will buy a total of $600 billion of bonds under its new stimulus programme, and will look for a US unemployment rate of 7 percent before it halts its buying.
Capping some of the metals' gains were worries about China's property market, a top user of metals for construction but also for collateral as developers use imports to get cheaper credit. Chinese property shares extended their losses on Monday, slipping more than 3 percent at one point after the eastern city of Nanjing was reported over the weekend to have reintroduced housing price controls to curb soaring prices.
In the week ahead, factory activity will come back to the fore with a series of industrial sector reports due for release. "This week, focus will shift toward economic numbers with euro zone PMIs due on Thursday. This could dampen the positive sentiment slightly," Credit Suisse said in a research note.
In other metals, aluminium closed at $2,167 a tonne from $2,195 at the close on Friday. Tin closed at $21,575 a tonne, having earlier hit its highest since early May at $21,750. It closed at $21,675 on Friday. Zinc, used in galvanising, closed at $2,089 from $2,116. Battery material lead, untraded at the close, was bid at $2,257 from $2,265 on Friday, while stainless steel ingredient nickel closed at $18,220 from $17,775.