Copper gains ahead of EU Summit

LONDON: Copper rose on Wednesday, ahead of a European Union summit, but looked vulnerable if markets are disappointed by lack of progress in tackling the euro zone debt crisis.

The metal used in power and construction was also bolstered by news that Freeport McMoRan Copper & Gold declared force majeure on concentrate sales agreements from its strike-hit Grasberg copper mine in Indonesia.

Three-month copper on the London Metal Exchange (LME) rose up to 3 percent to trade at $7,755 a tonne by 0909 GMT, just off a one-month high of $7,820 hit the previous session.

"There are very high hopes regarding the outcome of today's EU summit, that is the main driver today, as it has been over the last three trading days," Commerzbank analyst Daniel Briesemann said.

He also cited comments by Chinese Premier Wen Jiabao who pledged that the government would fine-tune economic policy and maintain appropriate credit growth.

The euro inched higher against the dollar ahead of the summit.

Optimism that leaders could take major steps in solving the crisis was tempered on Tuesday by news a meeting of European finance ministers had been cancelled, even though the summit will still go ahead.

"Today was set to be an all important decision day on EU debt, but we are now less sure that EU policy markers are ready to lay out a comprehensive plan, so the market may have to wait a while longer," Basemetals.com said in a note.

"Overall, we remain medium term bearish as the size of the debt issues are unlikely to go away regardless of what policy makers decide. If they manage to contain the situation that will be a result, but if they are to come up with a plan to get to the root of the problem then that is likely to mean further economic hardship."

FORCE MAJEURE

In Indonesia, production at Grasberg has been severely hit by a month-long strike action over pay and conditions, road blockades and possible pipeline sabotage.

Freeport's decision frees it from some of its contractual obligations to supply buyers of metal produced at the world's second-largest copper mine.

"This comes at a time when people are starting to feel more confident about the outlook for copper and about a pickup on the demand side," MineLife analyst Gavin Wendt said.

Underpinning copper in the face of economic headwinds was data on LME stocks, seen as an indicator of demand. The latest figures showed warehouse stocks fell 1,725 tonnes to total 437,425 tonnes, the lowest since March.

Dwindling LME copper stockpiles in Korea and Singapore, indicating steady import demand in top consumer China, supported prices.

Chinese fabricators are buying more spot refined copper because of reduced supply of alternative feed scrap and to rebuild stocks given low prices, traders said on Tuesday.

Among other metals, zinc , used in galvanizing, traded at $1,885 from$1,842 a tonne, while soldering metal tin was at $22,200 from $22,250 a tonne.

Copyright Reuters, 2011