Copper rose on Wednesday as the dollar retreated from a 14-year high and Chinese plans to add 2,100 km (746 miles) of track to its railway network this year bolstered demand expectations. Benchmark copper on the London Metal Exchange closed 2.6 percent up at $5,645 a tonne. Much of the gains came after New York opened and copper broke through key resistance at $5,610 a tonne, traders said.
The metal used in power and construction earlier hit $5,450.50 a tonne, its lowest in more than a week, as funds took profits on long positions betting on higher prices. The dollar edged down against a basket of currencies on Wednesday, making dollar-denominated assets such as copper cheaper for holders of other currencies.
Beijing on Wednesday announced plans to spend 800 billion yuan ($115.1 billion) to build extra track and electrify 4,000 km of railroad. Citi analyst David Wilson said that spending on railways in China would mean higher demand for copper wiring. "We need to continue to see positive data and continued spending in China and other emerging markets performing as well to keep the thesis in play that the global economy is recovering," he said.
Sentiment has been boosted by strong manufacturing data from the United States and China, which accounts for nearly half of global copper consumption estimated at about 22 million tonnes this year. Another positive for copper is a drop in stocks at LME-approved warehouses. At 305,875 tonnes, stocks are down 11.5 percent since December 16. Robust data from the United States is one reason behind the stronger dollar, which so far has been viewed by traders as a signal of economic strength.
AA strong dollar, however, poses a risk to metals prices if optimism over the global economy fades, Citi's Wilson said. China, meanwhile, will remain the primary focus for metals markets over the coming year. "Issues pertaining to currency, credit and the property sector remain," Marex Spectron said in a note.
"However, on the flip side, fiscal stimulus is likely to provide support into these dips across the industrial metals." Other metals also rose strongly as funds cut short positions after the US market opened, traders said. Zinc closed 3.9 percent up at $2,621 a tonne, lead rose 3.2 percent to $2,079 and nickel finished with a 3.1 percent gain at $10,220. Tin advanced by 0.9 percent to $21,145. Aluminium, which touched its lowest in more than two months at $1,676 a tonne on Tuesday, closed 0.1 percent lower at $1,685.
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