LONDON: Copper steadied on Wednesday as investors remained upbeat on China's growth prospects but were anxious ahead of an expected US rate rise and Federal Reserve commentary on the outlook for further monetary tightening and growth next year.
Investors are concerned that the dollar will get a further boost if the central bank also signals an acceleration in the pace of rate rises next year to deal with an expected ramp-up in fiscal spending under incoming President Donald Trump.
The spending plan is seen as inflationary and copper has until now attracted investment as an inflation hedge since Trump's election win. This has happened despite a dollar rally, which usually weighs on metals priced in the US currency.
"Copper has been correlated with the dollar but we don't think its sustainable. Ultimately the stronger dollar is making copper more expensive and at some point that will bite," said Caroline Baine, senior commodities economist at Capital Economics.
"Its been getting ahead of itself on optimism over demand, both from China and the US We think there won't be new stimulus in China and over the first quarter the impact of this year's stimulus will fade," she said.
Three-month copper on the London Metal Exchange traded down 0.4 percent at $5,744 a tonne in official midday rings, having hit $5,655.50, its weakest since Dec. 1 in the previous session. Also weighing on copper, the metal saw its third consecutive day of big inflows into LME warehouses. In three days, copper on-warrant stocks have surged 68 percent while headline stocks have climbed 30 percent.
The metal has risen 22 percent since mid-October, driven by encouraging signs of demand growth in China, which consumes nearly half the world's copper, and as stocks are withdrawn from global exchange warehouses.
In upbeat demand signals from Asia, Chinese banks extended 794.6 billion yuan ($115 billion) in new yuan loans in November and look set to extend a record amount of credit this year as Beijing boosts the economy to meet growth targets.
In other metals, nickel traded up 1.1 percent to $11,420. New Caledonia's nickel ore miners have applied to increase shipments to China after an environmental crackdown on Philippine mine supply this year caused prices to spike, four sources familiar with the matter said this week.
Aluminium traded up 0.7 percent to $1,743, zinc was last bid up 0.8 percent at $2,753, lead traded flat at $2,351 while tin traded up 1.3 percent at $21,300.
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