Copper edged up on Wednesday as the euro steadied against the dollar, but concern about contagion from the euro zone debt crisis and upcoming elections in highly indebted Greece kept investors cautious and prevented further gains for metals.
Three-month copper on the London Metal Exchange traded at $7,415.50 in official rings, up 0.3 percent from Tuesday's close of $7,395 a tonne.
Base metals were supported by a slightly firmer euro against the US dollar. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.
A 100 billion euro bank rescue plan for Spain earlier this week failed to calm nerves about debt contagion, and uncertainty remained about whether Greece will remain in the euro zone after its June 17 elections.
Spanish 10-year yields, which hit euro-era highs of 6.86 percent on Tuesday, were seen rising further and testing the 7 percent level, which is viewed by many as the point at which borrowing from capital markets becomes unaffordable in the long term.
“The positive sentiment surrounding Spain's rescue seems to have faded. There is just too much uncertainty ahead of the Greek elections and the euro summit and investors are cautious,” said Robin Bhar, analyst at Societe Generale.
“Until we get some of these uncertainties resolved it is difficult to see why anybody would want to put risk on. Copper prices are likely to be volatile.”
The metal used in power and construction is trading more than 11 percent lower so far this quarter as worries about the euro zone debt crisis and uncertainty about demand from top consumer China weigh. It is down 1.8 percent in the year to date.
“Once again, market participants chose to remain on the sidelines, occupied by the macro newsflow in Europe in addition to concerns over lost growth momentum in China and the release of numerous macro statistics earlier this week,” Andrey Kryuchenkov, analyst at VTB said in a note.
“The fundamental picture was also little changed from May, with copper still trading mostly off macro events.”
CHINA DEMAND EYED
Traders said the recent price drop has spurred Chinese copper demand, with physical premiums rising by a steep $40 to $60-$70 per tonne over LME prices since early May.
A Qingdao-based trader said she had seen signs of a small pickup in drawdowns from bonded warehouses in Shanghai, as LME copper's premium over Shanghai eased to 1,075 yuan from nearly 4,000 yuan in early May.
Macquarie analyst Bonnie Liu said the surprise 12 percent rise in China's copper imports last month also offered hints that Chinese demand was starting to recover.
“It is worth noting that this big import number for May happened at the same time as copper inventory was going down in China for both bonded and ShFE warehouses,” she said in a recent note.
“This implies improving demand from downstream end-users from the second quarter compared with the weakness at the start of the year.”
But market participants warned the rise in real demand was still slight, and much smaller than the import figures and a current backwardation in ShFE copper's front-to-forward-month spreads would suggest.
In other metals, tin traded at $19,500 a tonne in official rings from Tuesday's close of $19,700 a tonne, and zinc traded at $1,884 from $1,880.
Aluminium traded at $1,961 in rings from $1,968 and nickel was flat at $17,175.
China's nickel ore imports are expected to have hit a record high in May after a rush to purchase laterite ore ahead of a curb on shipments by top supplier Indonesia, although high inventories could put pressure on nickel prices.
Lead was untraded in official rings, but bid at $1,896 from Tuesday's close of $1,895.50. - Reuters