MANILA, Jun. 21 -- China's pledge to make its currency more flexible lifted copper and other base metals on Monday on hopes increased purchasing power will boost demand.
But prices quickly came off the session's highs after China kept the yuan flat against the dollar after its weekend announcement, frustrating investors who had expected the yuan to strengthen.
China announcement that it was ready to break a 23-month-old U.S. dollar peg had come under intenseinternational criticism, and was seen by analysts as mildlybullish for commodities. [ID:nSGE65I02M] [ID:nN19167499]
But Beijing on Sunday ruled out both major appreciation and a one-off revaluation, and the central bank set the yuan's
daily mid-point CNY=SAEC at 6.8275 to the dollar on Monday, unchanged from Friday.
For more on China's currency story: [ID:nSGE65J00E]
"People don't really believe that much of a revaluation is in store," said Ben Westmore, commodity economist at National Australia Bank, adding a yuan appreciation would be slow.
"It will be relatively modest, below 10 percent against the U.S. dollar over the next year."
Three-month copper on the London Metal Exchange CMCU3 rose $70 a tonne to $6,505 a tonne at 0250 GMT, off an early peak of $6,549.
At current prices, LME copper is still nearly 20 percent down from this year's high above $8,000 a tonne touched in early April, with any bounce capped by worries over the impact of Europe's debt crisis on the fragile global recovery.
"I think the focus is still on the global growth outlook," said Westmore. "There's broader issues at the moment foremost in investors' minds and that's still the euro zone."
China's weekend announcement may have been largely to avoid possible trade sanction or another stern warning from colleagues at the Group of 20 meeting in Canada next weekend, said Westmore.
The rebound in LME copper may be limited to $6,775, its June 16 high, after a sharp recovery from a low of $6,310 last
week, said Reuters market analyst Wang Tao. [TECH/C]
In Shanghai, benchmark third month copper SCFc3 rose 810 yuan to 51,740 yuan a tonne, off an early top of 52,020 yuan.
"Domestic customers are not really expecting the exchange rate to change sharply," said a Shanghai metals trader.
"The Chinese government will not prefer the yuan moving so quickly, maybe just 5 percent this year. That's why the price
rises are not that big."