Copper Gains on Softer Dollar, Awaits Fed Decision

MANILA, June 24 -- A weaker U.S. dollar pushed copper higher on Wednesday but gains were capped by concerns Chinese demand may be drying up.

    Investors are awaiting what Fed policy-makers say after their two-day meeting ends later in the day. With no move on interest rates expected, investors will focus on what the Fed says about the economic outlook and its debt-buying programme.

    "People don't have a very clear view at the moment, so what the Fed will say tonight is quite important for currencies and obviously, it will definitely affect commodities," said a Shanghai-based trader.

    The dollar hovered at its lowest levels for a week against the euro after sliding sharply across the board as investors readied for the Fed to dampen expectations for higher interest rates.

    A weaker dollar makes dollar-priced commodities cheaper for holders of other currencies, and dollar backsliding helped push the benchmark Reuters-Jefferies CRB Index of 19 commodity futures up 1.5 percent on Tuesday.

    Benchmark Shanghai copper rose 110 yuan to 38,450 yuan ($5,621) a tonne by 0212 GMT, adding to a 170 yuan gain on Tuesday.

    Copper for delivery in three months on the London Metal Exchange gained $15 to $4,820 a tonne. The LME metal rose $44 to end at $4,805 a tonne on Tuesday, after touching a low of $4,685, its weakest since May 28.

    Copper has risen around 57 percent in London and 61 percent in Shanghai, year to date, on sturdy Chinese buying which is likely to lose steam as the lean season starts.

    "Demand for metals like copper is traditionally weak in July and August when construction slows down in China," said analyst Shao Hebin at Great Wall Futures.

    "During these two months, people usually put their money in stocks and real estate, they leave metals."

    Concerns that demand from China, the world's top copper consumer, could slow in coming months after record imports until May had helped LME prices correct from a recent rally that drove it to eight-month peaks.

    And while the Chinese economy is headed in the right direction, the foundations of the recovery are not yet solid, Su Ning, a vice-governor of the People's Bank of China, said on Tuesday.

    There is talk that China's commodity buying arm, the State Reserves Bureau (SRB), may be unloading part of its stockpiles it built this year and has probably sold around 50,000 tonnes. Macquarie estimates SRB could sell another 100,000 tonnes in coming weeks.

    But expectations that world inflation will inch up as the global economy recovers in 2010 should support metals prices, said Great Wall Futures' Shao, who estimated LME copper to surge towards $8,000 next year, near the record $8,940 hit last July.

    (Source: Reuters)