LME copper firms 0.5 pc on soft dollar, Chile strife

SINGAPORE: London copper rose 0.5 percent on Monday, buoyed by a softer dollar and expectations that the Federal Reserve will continue to supply liquidity to the market, while zinc added 1.4 percent with an extra fillip from an LME margin cut.

Three-month copper on the London Metal Exchange rose $43.50 to $9,142.50 a tonne by 0459 GMT, having ended last week 1.1 percent lower.

There was no trade on the Shanghai Futures Exchange due to a one-day holiday in China.

Weak US data Friday showed payrolls rose by 54,000 in May, the softest reading since September, and the country's jobless rate rose to 9.1 percent in May from 9 percent in April.

But the softer numbers had a positive effect on metals, adding to speculative conviction that the Fed will continue to support liquidity in some form when its second bond purchasing programme expires at the end of the month.

"Copper gave up some of its early gains as the dollar recovered from its lows," said a trader in Perth.

"The market is convinced the Fed will act once QE2 expires -- it won't be called quantitative easing, and it might not be on the same scale as the previous programmes, but it will keep cheap cash readily available."

The US dollar slid to a fresh one-month low against a basket of major currencies early in Asia on Monday, finding no support after the disappointing jobs data.

Support also emerged after news Chile's fourth biggest copper mine, Codelco's El Teniente, was producing at less than half of capacity for a second day after most staff workers stayed home to avoid violence by striking contractors.

El Teniente, which produces about 2.5 percent of the world's mined copper or 404,000 tons-a-year, continued to work with a skeleton staff to keep production at 40 percent of capacity by processing stocked material.

"A two-day stoppage of 50 percent won't make much of a difference -- the loss in output -- less than 2,000 tonnes -- can easily be made up," said a physical trader in Singapore.

"But if it drags on for a couple of weeks, or longer, it could add to the tightness that I expect later in the third quarter."

Thousands of striking subcontractors demanding higher wages threw rocks at buses carrying staff workers to the mine site earlier this week.

Investors were more optimistic about Chinese demand for imported metal after estimates showed Shanghai bonded warehouse copper had fallen by more than a quarter from April.

Some estimated stocks may have fallen by about 200,000 tonnes from April to between 350,000 and 500,000 tonnes currently. Another market source, recently returned from China, believed stocks had fallen more sharply to near 200,000 tonnes.

Zinc rose 1.4 percent to $2,289, extending Friday's gains. Last week, LCH.Clearnet lowered margins for zinc, steel and molybdenum on the London Metal Exchange.

The changes take effect from the close of business on Wednesday and will reduce the margin in zinc to $5,250 from $6,000 currently, allowing investors to get additional exposure to the market with the same capital.

Tin prices were un-traded at $26,400, after shedding 4 percent last week, its seventh consecutive such drop and its largest since early May.

"The move below $27,200 for tin has a weak support level near $25,600 and long term support is near $23,900," said technical analyst Daryl Guppy at Guppytraders.com.

"Look for continued bearish pressure and a weak rebound from $25,600 prior to a continuation of the downtrend to support at $23,900."

Copyright Reuters, 2011