Copper was steady on Monday as the dollar rose and the market decided that recent gains were overdone, but prices are expected to be underpinned by strong fundamentals over coming months. Benchmark copper on the London Metal Exchange ended at $8,660 a tonne, unchanged from the close on Friday when the metal used in power and construction hit $8,769.50, its highest since July 2008.
On Monday, copper earlier touched $8,735 a tonne. The dollar rose on Monday as investors fretted anew about budget problems in Ireland and some of the eurozone's other weaker links and trimmed recent bets against the US currency.
"In the short term, moves are going to be heavily dictated by currency," said Daniel Major, analyst at RBS. "Stronger data from the US and concerns about eurozone debt could result in a stronger dollar and that could weigh on commodities over coming days."
Last week's surprisingly strong US jobs data also prompted investors to buy the dollar, which had slipped to a 9-1/2 month low against the euro after the Federal Reserve said it would buy $600 billion of Treasuries by mid-2011 to lower interest rates and reinvigorate the world's largest economy. "This is the main topic and I think it will stay around this week. People are just trying to reassess their dollar positions and see what happens," Andrey Kryuchenkov, analyst at VTB Capital, said.
A rising dollar makes commodities priced in the US currency more expensive for holders of other currencies. RBS' Major said investor interest in base metals will buoy prices even though prices have gone beyond fundamentals. Copper prices are up about 40 percent since June and compare with levels below $3,000 a tonne in December 2008 after the collapse of Lehman Brothers raised worries that recession could turn into a 1930s style depression.
US bank Citi said it had raised its short- to medium-term forecasts for base metals prices to reflect tighter demand and supply dynamics and a weaker dollar. Ratings agency Moody's said the global base metals recovery would continue.
Additional support for copper came from a strike by union workers at Chile's Collahuasi, the world's No 3 copper mine, which heads into a fourth day on Monday with no visible impact on output yet as wage talks remained stalled. The mine operator has said it has kept production going with the help of replacement workers as part of a contingency plan aimed at lessening the impact of the stoppage.
The operator has not said how long it can keep operations running with replacement workers. "Managers have hired replacement workers and claim operations are not affected, although we suspect output may decrease if the strike lingers for more than a week," Morgan Stanley said in a research note.
Also in focus are copper exchange-traded products that give investors exposure to physical metal. If they do come to fruition then a large chunk of copper will be taken out of an already tight market. Analysts expect the copper market estimated at around 19 million tonnes to be balanced or see a small deficit this year.
Three-month aluminium was untraded at the close but bid at $2,429 a tonne from $2,452 on Friday. Traders said news that China's State Reserves Bureau recently sold 95,767 tonnes of primary aluminium from its stockpiles was weighing on prices. Zinc ended at $2,479 a tonne from $2,528 on Friday, lead closed at $2,504 from $2,506. Tin was untraded at the close but bid at $26,595 from $26,440 and nickel ended at $24,125 from $24,450.