Copper slips as dollar strong on Fed expectations

Published Nov 12, 2013

Share

London - Copper slipped on Tuesday as the dollar strengthened on expectations the US Federal Reserve will curb stimulus measures sooner than previously expected, while investors awaited further details on China's economic plan.

Three-month copper on the London Metal Exchange was at $7,126.50 a tonne at 12:51 SA time, down 0.6 percent from a close of $7,173 on Monday.

The dollar rose against a basket of currencies on growing expectations the Fed will soon scale back monetary stimulus following above-forecast US jobs data last week.

Traders will be closely watching policy indications from the Fed, with Janet Yellen set to defend the central bank's ultra-easy monetary policy when she faces senators this week.

Ultra-loose monetary policy adopted by central banks around the world in the past few years has drawn investors to commodities as an alternative to interest-bearing assets.

“The market is still viewing the Fed as possibly wanting to taper stimulus sooner rather than later, and the bet is now on whether the Fed will move in December after consensus-beating economic data,” Robin Bhar, an analyst at Societe Generale, said.

“This is bolstering the dollar, and it seems to be a major factor (that is weighing on metals).”

In China, early details have emerged from its 10-year economic plan showing that the ruling party pledged to let markets play a decisive role in allocating resources as it looks to overhaul the world's second-largest economy to drive future growth.

China is the world's top copper consumer, accounting for around 40 percent of demand for the refined metal, which is used in power and construction.

“If they can achieve the trick of encouraging more domestic growth, that will be good for metals generally,” Bhar said.

Copper prices fell 1 percent last week, its biggest weekly fall since mid-September, but were still within a $7,000-7,420 band that has held since early August, weighed down by expectations of a growing surplus in the market.

Credit Suisse analysts said momentum was shifting to a modest surplus in the Chinese market in the fourth quarter, which is seen capping any further gains for copper.

“If this is the case, a final fling in prices in late 2013 looks optimistic,” Credit Suisse said.

“The lack of a positive move above the recent trading range points to a greater likelihood of a step down in prices as we move into 2014 when surpluses should become more apparent.”

A Reuters poll in October showed analysts 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.

In other metals, benchmark aluminium was at $1,802.75, down from a close of $1,809 on Monday.

Prospects for aluminium are improving, two producers said in results overnight.

Russia's United Company Rusal said it expected the global aluminium market to fall into a deficit of 280,000 tonnes this year due to production cuts as it posted a recurring net loss of $132 million in the three months ended September 2013.

US products maker Novelis Corp said it expected better results in the second half of its fiscal year as it shifts focus to the better performing automotive sector, where aluminium is gaining market share due to its light weight. - Reuters

Related Topics: