Copper futures prices touched a new seven-week high on Thursday, taking their cue from the weak dollar and improved sentiment after the US Federal Reserve's rate cut earlier this week. Copper for three-month delivery on the London Metal Exchange touched $7,953 a tonne, its highest since August 1, but later trimmed gains and closed at $7,890, up $5 from Wednesday.
The dollar sank to a record low beyond $1.40 per euro, weighed by a 50 basis point US interest rate cut on Tuesday and expectations for further easing. "The dollar's weakness supports all commodities across the board," analyst Sudakshina Unnikrishnan at Barclays Capital said. A weak US currency makes dollar-priced metals cheaper for holders of other currencies.
Traders said the market was consolidating after Wednesday's rally when nickel rose by over 12 percent to a two-month high of $34,500 and zinc added on 6.5 percent at one point.
"Metals' short-term fortunes may depend on the short-term fortunes of the dollar, which is weak against everything," UBS said in a research note. European equity markets lost ground with FTSEurofirst index of top European shares ended 0.7 down while London-listed miners such as Rio Tinto, BHP Billiton and Xstrata gained up to 1.3 percent.
The health of the US economy still remains key for many markets, but the fundamentals for industrial metals remain strong as the fourth quarter approaches, analysts say. "As the northern hemisphere holiday lull draws to a close, copper looks reasonably well set for a robust end to the year," George Cheveley, investment adviser to Investec Asset Management, said in a note. "Visible stocks remain at low levels...it is unlikely that supply will increase sharply in the fourth quarter.
The copper market was 131,000 tonnes in deficit from January to June, against a surplus of 208,000 tonnes in the same year-ago period, according the seasonally adjusted figures of the International Copper Study Group (ICSG).
The Lisbon-based ICSG said world refined copper output was 8.929 million tonnes for the first six months of the year, while consumption totalled 9.272 million, resulting in a deficit of 343,000 tonnes, versus a 3,000 tonnes surplus a year earlier.
Stocks of copper in the LME registered warehouses stood at 133,900 tonnes - less then three days' of global consumption and versus a year-high of 216,100 tonnes in February. Zinc fell $76 to $2,904, while nickel, the key ingredient in stainless steel, fell $1,200 to $32,600.
"All traders and investors are preparing themselves for a pick up in stainless steel demand that places a brake on the build in LME inventories," J.P. Morgan said in a research note. "The anecdotes in the market suggest that the next 1-2 months will see a pick up in consumer interest...We would not be surprised to see the 3-month nickel price push through to the $35,000 - $40,000/mt level," it said.
Stocks in LME warehouses rose by 24 tonnes to 29,760 or some 8 days of global consumption, up from this year's low at 2,982. Aluminium fell to $2,442 from $2,484 a tonne. Lead gained $20 to $3,255, while tin was down $100 to $15,250.