Copper dipped on Tuesday but remained firmly underpinned by a weak dollar and strength in world equities after Federal Reserve Chairman Ben Bernanke signaled that the U.S. ultra-loose monetary policy will continue.
Base metals have struggled to break out of a recent trading range, while signals have been mixed on the outlook for economic growth in the United States and China, the world's largest consumer of copper.
Three-month copper on the London Metal Exchange was $8,490.50 per metric ton in official rings from $8,533 at the close on Monday. The metal hit $8,765 last month, its highest in around five months, but has since failed to break through that level.
It rose by the most in more than two weeks on Monday as the dollar weakened after Bernanke said loose monetary policy was still needed to reduce unemployment, even though the U.S. economy had shown signs of improvement. A weaker dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies.
The market was starting to contemplate the absence of monetary accommodation, and with the comments from Bernanke that they will remain in place ... was very much dovish, Dan Brebner, an analyst at Deutsche Bank, said.
That will help underpin markets still hamstrung by uncertainty about global economic growth, especially in China.
China's industrial firms suffered a rare drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and top metal consumer.
We are in a seasonally strong period for metals, but we are running out of time. We've got six more weeks, then we get to mid-May when the market is starting to look at the summer slowdown, Brebner said.
The China demand situation looks much less robust than the market would like, but the market is holding up despite all these factors.
Bearish U.S. housing data also weighed on copper. Contracts to buy previously owned U.S. homes unexpectedly fell in February, suggesting a further pullback in sales as the housing market struggles to regain its footing.
A U.S.-led recovery would certainly be bullish for commodities, especially oil, but a concurrent slowdown in China would certainly tame any price appreciation especially in the metal sector, RBC said in a research note.
And this is where we find ourselves, oil in a slow move higher while base metals range-trade. The eventual break will be driven by the U.S. and China moving lock step to greater growth.
To help base metals out of their range, the market needs fresh fundamental impetus, which may be provided by U.S. durable goods orders on Wednesday and China's official PMI due on April 1, Credit Suisse said in a note.
Meanwhile, Chinese demand for zinc and lead from the galvanized steel and battery sector is slowly but surely picking up, said Angela Bi of Macquarie in Shanghai.
Galvanized steel producers have been restocking since the end of February, so we see some fundamental support for zinc. The short-term downside risk to zinc is still limited, but I don't see much momentum to push the price above the marginal cost level because there is still huge inventory, she said.
For lead, the fundamentals are much better. Smaller lead acid battery plants have ramped up production since the end of February. Automakers have also raised production 10-15 percent in March, at the same time bike production is also recovering from the Chinese New Year period, she said.
Benchmark three-month zinc, untraded in ring, was bid at $2,020 from $2,021 at the close on Monday, while lead was $1,997 in rings from $2,002.
Tin was $22,525 in rings from $22,500, aluminum was $2,174.50 from $2,186 and nickel was $18,100 from $18,130.
Metal Prices at 1206 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
Metal Last Change Pct Move End 2010 Ytd Pct
COMEX Cu 386.10 -2.60 -0.67 444.70 -13.18
LME Alum 2174.50 -11.50 -0.53 2470.00 -11.96
LME Cu 8487.75 -45.25 -0.53 9600.00 -11.59
LME Lead 1994.00 -8.00 -0.40 2550.00 -21.80
LME Nickel 18050.00 -80.00 -0.44 24750.00 -27.07
LME Tin 22520.00 20.00 0.09 26900.00 -16.28
LME Zinc 2022.00 1.00 0.05 2454.00 -17.60
SHFE Alu 16250.00 15.00 0.09 16840.00 -3.50
SHFE Cu* 60710.00 530.00 0.88 71850.00 -15.50
SHFE Zin 15640.00 150.00 0.97 19475.00 -19.69 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07