Copper up on short covering but higher dollar limits rise

LONDON: Copper rose on Tuesday as traders and funds reversed bets on lower prices though gains were capped by a stronger dollar and uncertainty over demand growth in top consumer China.

Benchmark copper on the London Metal Exchange traded up one percent at $4,610 a tonne in official rings, having last week touched a three-month low at $4,540.

Copper's failure to fall below support in the $4,525/$4,575 area was the trigger for cutting short positions and going long, traders said. They expected the upside to be capped at $4,630/$4,640, near the high seen on May 20.

Growing expectations the U.S. Federal Reserve will raise rates in June have boosted the dollar, making commodities priced in the U.S. currency more expensive for buyers using other currencies.

The focus is also on China, which accounts for nearly half of global copper demand estimated at about 22 million tonnes this year.

"In the short term, copper will depend on Chinese data, while supply growth is probably going to keep any price rallies suppressed," Bernstein Securities analyst Paul Gait said.

Clues to the strength of Chinese demand will come from surveys of purchasing managers in the manufacturing sector due on June 1.

In the very near term, worries about a tight LME copper market have pushed up the premium for cash material over the three-month future to $16 a tonne from $2 on May 17.

That concern was fuelled by cancelled warrants - or metal earmarked for delivery and so not available to the market - rising to 27 percent of the more than 157,000 tonnes of copper stocks in LME approved warehouses.

Aluminium was untraded in the rings but bid 0.4 percent higher at $1,561 a tonne while zinc fell 0.4 percent to $1,833 a tonne.

Zinc is up more than 13 percent so far this year on expectations of shortages due to mine closures.

But data from the International Lead and Zinc Study Group shows the rise has triggered a supply response in China, where output of refined metal rose an annual 2 percent to 495,000 tonnes in March, the first increase since October.

"The risk is this trend extends through Q2 and results in lower concentrate and refined metal imports, in turn softening the ex-China market," Standard Chartered said in a note.

Lead traded down 0.3 percent at $1,652 a tonne, tin lost 2.3 percent to hit $15,700 a tonne and nickel gained 0.5 percent to reach $8,375 a tonne.