London - Copper steadied on Wednesday from the previous session's three-month lows, helped by Federal Reserve Chairman Ben Bernanke's pledge of support for ultra-easy monetary policy and by China's plans to make its currency more flexible and market-driven.
Investors were cautious, however, as they awaited the minutes from the Fed's October meeting, due later in the session, and fretted about a looming surplus expected to take hold in the copper market next year.
“The noises we've been getting ... are that stimulus is to last for longer than the market had expected. That's definitely a positive,” Natixis analyst Nic Brown said.
“Out of China, the idea of making market forces take a more decisive role in the economy is crucial. A strengthening yuan should push up the dollar price of metals to account for the fact that Chinese purchasing power is increasing,” Brown said.
He added: “Everybody is expecting a surplus next year, but we think there's scope for a short-term squeeze.”
Three-month copper on the London Metal Exchange climbed 0.22 percent to $6,985.25 a tonne by 12:26 SA time.
Copper sank to its lowest since August 7 on Tuesday at $6,910, having last week broken out of a $7,000-7,420 range in place for the past three months.
Bernanke said on Tuesday the Fed will maintain ultra-easy US monetary policy for as long as needed, which could mean holding interest rates near zero until “well after” US unemployment falls under 6.5 percent.
In another closely watched move, the Chinese central bank set the yuan's mid-point for Wednesday trading at its highest since a landmark revaluation in 2005.
Though markets have grown cautiously optimistic about sweeping plans by China to engineer a more market-driven economy, metals investors remain concerned that supply will outstrip demand next year.
Analysts polled by Reuters expect the copper market to post a surplus of 182,000 tonnes this year, up from a previous forecast of 153,000 tonnes, before ballooning to 328,000 tonnes in 2014.
On the other hand, market indicators imply supply is tight at the moment.
Chile's Codelco, the world's top copper producer, has raised the premium for 2014 term shipments to China by 41 percent to a nine-year high, four trading sources said.
The latest LME data showed copper inventories fell by 1,950 tonnes to 445,700 tonnes, their lowest since late February. Shanghai and COMEX stocks have also been trending lower.
Open interest for copper has declined in the past few days, alongside LME prices, suggesting short position holders are taking profits - rather than opening new short positions, indicating prices may find a more stable footing soon. - Reuters