Copper steadies as dip in US$ offsets worries about demand

London

COPPER prices edged into positive territory on Friday as a slightly weaker US dollar balanced worries that a recent rally was overshooting the supply-demand fundamentals.

Most industrial metals fell earlier in the European session, but erased their losses as the US dollar slipped after downbeat US data. A weaker US dollar boosts the purchasing power of commodities buyers holding other currencies.

The US dollar came under pressure after US consumer sentiment fell more than expected in May and industrial output dropped for a fifth straight month in April. "The dollar is supportive, which is somewhat counter-intuitive. The dollar is down because the US economy is weak, which would be negative for metals. But bad news is good news, good for Fed to delay (a hike in interest rates)," said Robin Bhar, head of metals research at Societe Generale in London.

Investors were likely liquidating positions earlier in the session on worries that a recent rally had overshot on the upside, he noted. "Right now, we're probably above fundamentally justified levels, given that we've really not seen a big shift in increased physical buying."

Three-month copper on the London Metal Exchange (LME) closed up 0.2 per cent at US$6,415 a tonne, bouncing from an intraday low of US$6,352, after closing flat in the previous session.

Copper has been consolidating since hitting the highest levels in 2015 the previous week at US$6,481, having clawed back nearly 20 per cent from the year's lows to post a modest one per cent year-to-date gain. "Demand conditions aren't fantastic ... for me, fair value in copper would be US$5,700 to US$5,800," Mr Bhar added.

China's interest rate cut over the previous weekend was the most recent in a string of measures to shore up a property sector whose slowdown has dragged on economic growth and demand for metals.

"There's still a good long-term story to copper, given the lack of supply from around 2017 ... but I wouldn't necessarily be chasing copper too hard at these levels," said analyst Dan Morgan at UBS in Sydney.

LME aluminium slipped 0.8 per cent to end at US$1,853 a tonne after touching US$1,847, the weakest since April 28. Aluminium stocks at Japanese ports rose for the 13th month to a record high of 470,200 tonnes, highlighting the healthy supply situation in the sector. Heavy supplies as well as fears of rising Chinese exports of semi-finished aluminium products helped drive down spot premiums for physical metal in Asia to half the level of March.

Lead finished 0.3 per cent firmer at US$1,977 a tonne, recovering after hitting a one-month low of US$1,964, while zinc shed 0.8 per cent at US$2,291. Tin closed down 0.5 per cent at US$15,775 a tonne and nickel, which failed to trade in closing rings, was bid up 1.3 per cent at US$13,960. REUTERS