Copper dipped on Wednesday on uncertainty about China’s economic growth and as bearish investors resumed selling when Chinese markets reopened after a break.
Copper surged to a six-week high on Tuesday, breaking out of a month-long range and forcing shorts to cover their positions, as markets welcomed signals that the US central bank would not rush to hike interest rates.
“Yesterday we saw a massive short-covering rally, so it’s not really surprising that it’s off a little today,” said analyst David Wilson at Citigroup in London. “I suspect some of those shorts that covered yesterday have come back to sell,” CNBC reported.
Three-month copper on the London Metal Exchange fell 0.6 percent to $5,749 a ton by 1100 GMT. That eroded a 2-percent gain from the previous session, when the contract hit its highest level since Jan. 13 at $5,846 a ton.
Selling by Chinese hedge funds helped drive copper down to a 5-1/2 year low of $5,339.50 last month, traders and analysts have said.
Wilson said he was encouraged about the prospects for Chinese demand following the Lunar New Year holiday. “Chinese physical premia have been picking up since November and we understand there have been very strong bookings for March delivery.”
A physical trader in Singapore said that bonded copper premiums had firmed to $90-$95, from $85 before the holiday and he expected them to climb to $100 soon.
Murky Outlook
There was a murky outlook, however, from the latest Chinese data, showing activity in its mammoth factory sector edged to a four-month high in February but export orders shrank at their fastest rate in 20 months.
“What we need from China is just an expectation that it won’t fall off a cliff. Then I think copper will go OK,” said analyst Dominic Schnider of UBS Wealth Management in Hong Kong.
“While there’s still room for a drop near term, (mine) supply challenges are clearly for the minute giving a bit of a floor.”
China’s domestic copper supply has improved as local copper producers have ramped up output in the past few months, while exchange stocks in China and on the London Metal Exchange have jumped this year.
But miners have cut production forecasts in part due to accidents and declining ore grades.
The most-traded April copper contract on the Shanghai Futures Exchange traded flat at 42,080 Yuan ($6,724) a ton.
Russia’s United Company Rusal Plc reported a more than six-fold rise in fourth-quarter earnings due to a slump in the ruble against the dollar and stronger aluminum prices, and forecast a 1.1 million ton deficit in aluminum supply in 2015 outside China.
