Copper surges to four-month high after Fed shifts stance

Copper jumped to its highest in more than four months on Thursday, boosted by signs from the US Federal Reserve it will not raise rates to the extent flagged last year, falling inventories and higher stock markets. Benchmark copper on the London Metal Exchange was untraded at the close, but bid up 2.7 percent at $5,069.5 a tonne after hitting $5,074 earlier in the session, its highest since November 5.
In December, about four rate rises were expected this year but the majority of Fed policymakers now say it would be appropriate to raise rates by about a half a percentage point by the end of 2016.
The shift in stance undermined the US currency, making dollar-denominated commodities cheaper for non-US firms, which is a relationship used by funds to generate buy, sell signals using numerical models.
"Equities are doing well and the dollar is weak, which is supportive," said Steve Hardcastle, head of client liaison at Sucden Financial. "LME stocks are still falling and the amounts available to the market are falling as well.
Stocks of copper in LME approved warehouses stood at 160,925 tonnes, down about 30 percent since late November.
Of those stocks, cancelled warrants, or metal earmarked for delivery, was at nearly 46,000 tonnes, meaning only about 121,000 tonnes of copper was available for the market.
However, much of the inventory in LME warehouses has moved to warehouses monitored by the Shanghai Futures Exchange. Copper stocks in ShFE warehouses have nearly doubled since the middle of December to reach 350,138 tonnes.
"While LME stocks have dropped quickly, the build taking place in China has been at least as severe, and premiums are falling in Shanghai as metal has piled up," Macquarie analysts said in a note.
"Price-led mine cutbacks slowed as aggressive cost cutting and input deflation have improved margins," they said.
Premiums for copper in bonded warehouses in Shanghai fell $5 to $82.50 a tonne, the weakest since January 6. Traders said copper's break above the 200-day moving average puts the next upside target at $5,140, a 38.2 percent Fibonacci retracement of the May 2015 to January 2016 fall.
"Funds have been more active, so there may be momentum to take copper higher," a copper trader said.
Three-month aluminium traded up 1.1 percent at $1,526, zinc gained 4.2 percent to reach $1,821, lead rose 3.2 percent to $1,835, tin added 1.8 percent to hit $17,000 and nickel rose 3.5 percent to $8,890.