Copper rose on Wednesday as investors covered short positions but it ended August with a 6 percent loss for the month after rising inventories in Asia signalled muted demand from top consumer China. Benchmark copper on the London Metal Exchange ended up 0.2 percent on the day at $4,617 a tonne helped by funds and traders squaring short positions.
Rising inventories of copper in LME-approved warehouses, up more than 80,000 tonnes since the middle of August to 293,525 tonnes, have weighed on copper prices. "The high level of stocks is a reflection of the development in the underlying market, it is pointing towards slower demand especially in China," Quantitative Commodity Research analyst Peter Fertig said.
China accounts for nearly half of global consumption estimated at around 22 million tonnes this year. Commodity prices could be facing headwinds from the renewed possibility that US interest rates could rise in September following hawkish comments from Fed officials, which could boost the dollar. US non-farm payrolls data due on Friday could give an indication of whether an imminent rate rise is likely.
Oxford Economics analyst Dan Smith said copper faced risk from a stronger dollar if speculation on a US rate rise increases, but downside should be limited as copper has recently fallen more sharply than other metals. "We are relatively optimistic that we are close to the floor on copper, it's been beaten up this year relative to all the other metals," Smith said.
A firmer dollar erodes the spending power of commodity buyers outside the United States. In other metals, tin is the top performer this month with gains of 5 percent. It has risen 29 percent this year due to worries about supplies and falling LME inventories. Tin rose 0.4 percent to $18,875 an ounce, its strongest since February 6. Zinc was barely changed at $2,310 an ounce. But it is up about 60 percent from January lows due to expectations of shortages this year and next.
A tight LME market, due to large positions holding 50-79 percent of zinc warrants and cash contracts, pushed the premium for the cash contract over the three-month contract to above $6 a tonne on Wednesday, its highest since July last year. Lead added 1.4 percent to $1,904.50, aluminium was down 1 percent to $1,614, while nickel rose 0.7 percent to $9,765.