Stronger dollar limits metals' gains

Copper eased on Wednesday due to a strong dollar and patchy US data that fuelled worries the world's top economy could be entering a protracted soft patch with rising inflation. Three-month copper on the London Metal Exchange ended at $9,154 a tonne from $9,170 on Tuesday's close. It earlier hit a session peak of $9,234, its highest since June 1.
"Copper has been stymied by a slightly stronger dollar," analyst David Wilson of Societe Generale said, adding that any downward drag on the dollar could cushion commodity prices.
"The soggier the US data the less likely there will be any moves towards tightness," he said. "But we still think that the US is going to disappoint over summer." The dollar extended gains against the euro and yen on Wednesday after US inflation data came in higher than expected in May. A stronger dollar makes commodities more expensive for holders of other currencies.
China's central bank has raised interest rates four times since October and lifted the reserve requirement ratio (RRR) - its preferred policy tool which mops up excess cash in the economy - nine times, with the latest move on Wednesday. China is the world's top consumer of base metals.
Aluminium, one of the most energy-intensive metals to produce, ended at $2,591 per tonne from a close of $2,627,although it was underpinned by reports that China appeared to be heading for its worst power shortage since 2004.
Should this occur, there will likely be an impact on aluminium and nickel pig iron production there," RBC Base Metals said in a research note. "It's worth keeping an eye on these developments."
A backwardation has developed in the front months of the Shanghai aluminium curve, which signals the local market is preparing for tight physical markets in months to come, RBC said. Copper inventories in LME-monitored warehouses fell for a third session, with most coming out of warehouses in Gwangyang, South Korea, data on Wednesday showed. Inventories are down 5,000 tonnes this week from one-year highs.
Stocks of copper in bonded warehouses in Shanghai are estimated to have fallen by around 50 percent from above 600,000 tonnes earlier this year as merchants have sold the material into China's backwardated market to take advantage of strong prompt prices.
"Reports of sharply declining bonded stock levels in China in recent weeks has also seen sentiment improve towards copper," noted Standard Bank.
Analysts say China is likely to return to the copper market and vindicate predictions of a deficit this year, easing concerns that its absence could fuel a surplus. Tin was at $25,150 per tonne from $25,650, while zinc was at $2,246 from $2,280.
The global zinc market was in surplus by 178,000 tonnes in the first four months of 2011, the Lisbon-based International Lead and Zinc Study Group (ILZSG) said. Battery material lead fell 2.5 percent to $2,518 from $2,580. ILZSG said that the global lead market was in surplus by 74,000 tonnes for the same period.
Nickel finished at $22,050, having hit a new trough since November at $21,979 earlier, from $22,315 due to soft demand from the stainless steel sector.