Copper prices ended flat on Tuesday as a weaker dollar balanced persistent concerns over demand in top metals consumer China and uncertainty ahead of the US Federal Reserve's policy meeting. Benchmark copper on the London Metal Exchange ended 1 cent lower at $4,945 a tonne in official trade, recovering from an earlier low of $4,881.50.
Copper has climbed around 15 percent since January 15 when it touched $4,318, its lowest since May 2009. Large holdings of copper warrants and cash contracts on the LME has created nearby tightness and pushed the premium for the cash contract over the three-month future to a four-month high above $25 a tonne on Monday. The premium on Tuesday was around $18 a tonne.
Still, analysts caution against excessive optimism about demand growth in China, which accounts for nearly half of global demand estimated at around 22 million tonnes this year.
"One thing people will be looking at very closely is the inventory data in Shanghai warehouses. If it continues to build it will be a very bearish signal for copper," said Barclays metals analyst Dane Davis. The Federal Reserve is not expected to raise US rates after this week's two-day meeting ending on Wednesday.
But it is likely to make clear that as long as US inflation and jobs continue to strengthen, weakness overseas will not stop rates from rising fairly soon.
Higher rates could mean a firmer US currency, which would make dollar-denominated commodities more expensive for non-US firms, a relationship used by funds to generate buy or sell signals from numerical models.
Macquarie analysts say fundamentals have improved from an extremely low base in December and January.
"The underlying situation however remains one of overcapacity across the vast majority of markets, and many producers facing significant balance sheet concerns."
Three-month aluminium ended down 1.5 percent at $1,520 a tonne. It has recovered from a 6-1/2 year low of $1,432.50 a tonne hit in November last year, but an oversupplied market and Chinese exports are expected to limit gains. Zinc closed down 2.4 percent at $1,742. Expectations are for zinc to outperform other industrial metals due to tighter supplies caused by shutdowns.
Tin fell 0.2 percent to $16,855, nickel ended down 0.6 percent at $8,555 and lead slid 2.7 percent to $1,786.