Copper up on lower dollar, focus on China demand

Copper prices rose on Thursday due to a lower dollar after the US central bank left interest rates on hold and as the market waited for confirmation of stronger demand in top consumer China. Benchmark copper on the London Metal Exchange ended up 0.8 percent at $4,942, with most of the gains coming after the New York open. The metal used widely in power and construction fell to a one-week low of $4,873 on Wednesday.
The sell-off earlier this week was sparked partly by negative sentiment after Chinese exchanges moved to clamp down on speculation and curb volatility in iron ore and coal with measures such as higher transaction fees and margin requirements. Copper rose to $5,091 a tonne last week, it highest in more than four weeks, on optimism about Chinese consumption after a slew of above-consensus data on new loans, industrial production, investment and housing.
"Markets are waiting to see if there is a basis for the recent rally," said Danske Bank analyst Jens Pederson. "The last part of the rally we saw in base metals was due to sentiment regarding improvements in China ... We need to see that feeding through into base metals demand to see higher prices, see them back above $5,000." Clues to Chinese demand will come next week with the release of surveys of purchasing managers in the country's manufacturing sector.
"Feedback from recent investor meetings would suggest most are still underweight the metals and mining sector," UBS said in a note. "Concerns are clearly centred on the sustainability of the recent Chinese momentum." A lower US currency, which makes dollar-denominated metals cheaper for non-US firms, after the Fed's statement following its meeting showed it was in no hurry to raise rates, helped boost sentiment for industrial metals. Three-month aluminium was up 1.3 percent at $1,664 a tonne. It has risen more than 10 percent since late March because of the potential for tightness on the LME due to rising cancelled warrants, now around 45 percent. Cancelled warrants are metal earmarked for delivery and so not available to the market.
Globally though, aluminium is oversupplied, a problem which could be exacerbated by current high prices triggering smelter restarts in top producer China. Zinc gained 1.4 percent to $1,912, lead rose 0.9 percent to $1,751, tin slid 0.5 percent to $17,090 and nickel rose 1.1 percent to $9,290 a tonne.