Copper stays lower

Copper dipped in a second day of modest losses as the dollar strengthened and physical demand in China was sluggish ahead of the Lunar New Year holidays. The dollar index rose, making it more expensive for holders of other currencies to buy metals priced in dollars.
Three-month copper on the London Metal Exchange ended at $8,245 from $8,271 on Tuesday. It earlier touched a session high of $8,322, not far off Monday's peak of $8,346, which was the highest since October. The most-traded copper contract for May delivery on the Shanghai Futures Exchange closed nearly flat at 59,840 yuan ($9,600) a tonne.
LME copper has gained about 4 percent this year, lifted by upbeat economic data from the United States and top metals consumer China, but underlying demand has been lacklustre. "It's encouraging that there's been some signs of a pick up in fund buying with open interest in copper up almost 10 percent in January," said Wiktor Bielski, head of commodity research at VTB Capital in London.
"But there's not much fundamentally that's happened so far this year. From talking to some of the producers, it's pretty clear that consumers are still living very much hand to mouth." Copper is expected to consolidate around current levels ahead of and during the Chinese holiday, when markets will be closed February 11-15. Data from Tuesday gave more confidence that the world economy is on the mend as the US services sector stretched a three-year expansion in January and business activity in the euro zone showed signs of recovery.
There is unlikely to be a bout of buying when China reopens after the holiday, but there should be steady demand as investment in the world's second biggest economy gathers pace, Bielski said. "Five or six provinces are targeting fixed asset investment growth of 30 percent plus. So without a doubt, there's a lot of momentum in terms of what the plans are for actual investment and therefore demand for commodities." Some analysts, however, are concerned about expansion of supply capping prices as the year progresses.
"We are at a turning point, and we don't expect copper to push higher over the second quarter, with more supply coming through the market and more modest growth in downstream fabricator demand in China," said Matt Fusarelli, analyst at Australia-based consultancy AME Group.
AME expects global copper supply to outpace demand by around 300,000 tonnes in 2013, while China's economy moves to a consumer-led recovery with the pace of fixed-asset investment slowing, he said. Investors will be keeping an eye on China's trade data, due out on Friday, to gauge the country's appetite for copper imports, which are expected to be flat or edge higher in January as extra term shipments arrived before the Lunar New Year holiday. Imports fell 6.6 percent in December.
Lead, mostly used in batteries, ended at $2,422 a tonne. Goldman Sachs analyst Max Layton expects lead prices to fall further over the next three to six months to around $2,150 a tonne on the back of destocking of lead through the supply chain in China. He pointed out that the LME lead price has rallied by about 40 percent since mid-2012, outperforming a largely unchanged lead price on the Shanghai exchange.
"The rally in the LME price, together with the strength in ex-China physical premia, has seen ex-China prices move well above Chinese prices, which is quite rare and is often associated with a peak in the LME lead price," Layton said in a note. Zinc ended at $2,170 from $2,176.50 and nickel closed at $18,320 from a last bid of $18,695. Tin ended at $24,850 from $24,925 while aluminium was untraded at the close but bid at $2,095, from Tuesday's close of $2,111.