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Copper jumps on softer dollar
2009/06/24 10:46:00 AM

Manila - A weaker US dollar pushed copper nearly 2% higher on Wednesday as investors waited for the outcome of the Federal Reserve's two-day meeting later in the day.

Economists expect the US central bank to keep interest rates on hold and dampen expectations for rate hikes this year, sending the dollar sharply lower against the euro and other major currencies.

"People don't have a very clear view at the moment so what the Fed will say tonight is quite important for currencies and obviously, it will definitely affect commodities," said a Shanghai-based trader.

A weaker dollar makes dollar-priced commodities cheaper for holders of other currencies, and dollar backsliding helped lift the benchmark Reuters-Jefferies CRB Index of 19 commodity futures by 1.5% on Tuesday.

Benchmark Shanghai copper jumped 720 yuan, to close at 39 060 yuan, adding to a 170 yuan gain on Tuesday.

Copper for delivery in three months on the London Metal Exchange gained $93 to $4 898 a tonne by 070:1 GMT.

Copper has risen around 60% in London and 64% in Shanghai, year to date, on sturdy Chinese buying which is likely to lose steam as the lean season starts.

"Demand for metals like copper is traditionally weak in July and August when construction slows down in China," said analyst Shao Hebin at Great Wall Futures.

"During these two months, people usually put their money in stocks and real estate, they leave metals."

Concerns that demand from China, the world's top copper consumer, could slow in coming months after record imports until May had helped LME prices correct from a recent rally that brought it to eight-month peaks.

And while the Chinese economy is headed in the right direction, the foundations of the recovery are not yet solid, Su Ning, a vice-governor of the People's Bank of China, said on Tuesday.

There is talk that China's commodity buying arm, the State Reserves Bureau (SRB), may be unloading part of its stockpiles it built this year and has probably sold around 50 000 tonnes. Macquarie estimates SRB could sell another 100 000 tonnes in coming weeks.

But expectations that world inflation will inch up as the global economy recovers in 2010 should support metals prices, said Great Wall Futures' Shao, who estimated LME copper to surge towards $8 000 next year, near the record $8 940 hit last July.

Shanghai zinc, a raw material for galvanising steel, rose 205 yuan to 13 390 yuan a tonne as China rejected charges from the United States and Europe that its restrictions on raw material exports violated global trade rules.

Zinc is among the nine materials covered by the US complaint, which also includes bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal and yellow phosphorus.

- Reuters