BASE METALS: Improved Risk Tolerance Lifts Copper In New York

Aug 17, 2011 NEW YORK (Dow Jones)--Copper prices settled higher Wednesday as investors looked for greater returns in riskier assets like commodities.

The most actively traded contract, for September delivery, settled 3.80 cents, or 1%, higher at $4.0320 a pound on the Comex division of the New York Mercantile Exchange.

Thinly traded August-delivery copper gained 3.50 cents, or 0.9%, to settle at $4.0290 a pound.

Copper prices have orbited the $4 level after slumping almost 10% in early August. At the time, a debt-ceiling stand-off in Washington and escalating fears of a global slowdown culminated in a broad-based retreat from risky assets like commodities and stocks.

But as financial markets stabilize after two weeks of wild price swings, investors are slowly returning to higher risk assets like copper as they look for greater profits.

"We still remain of the view that base metal prices will head higher into year end, but the short-term picture remains cloudy as ever with numerous factors capping the markets for the moment," including sovereign-debt problems in Europe and worries about slowing growth, traders at RBC Capital Markets said in a note to clients.

A weaker dollar boosted the appeal of dollar-denominated copper futures to investors holding foreign currencies. Demand for the contracts tends to rise when the dollar eases, as copper, which is denominated in dollars, seems cheaper to these investors.

The ICE Dollar index was recently at 73.651, down from 74.010 late Tuesday in New York.

"The U.S. Dollar was under pressure today which was supportive for commodities and during the afternoon this became the major driver of prices in a northerly direction," traders at Sucden Financial in London said in a note to clients.

But copper's tenuous recovery could be undercut by a weaker Chinese yuan, said Leon Westgate, a base metals analyst with Standard Bank. China is the world's top consumer of the red metal, as its booming construction and manufacturing sectors rely on copper for electrical wiring and copper tubing.

China's currency has languished in recent days, after roaring higher last week. The more stable exchange rate pared the advantage of added buying power, "which has perhaps also seen Chinese participants step back a little" from the copper market, Westgate said.

Copper settlements (ranges include electronic and pit trading):
Aug $4.0290; up 3.50 cents; Range $4.0025-$4.0515
Sep $4.0320; up 3.80 cents; Range $3.9690-$4.0785