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Markets

Copper supported by low stocks and weaker dollar

  • Nickel prices hit highest since November 2019.
  • Cash copper still at a premium to 3-month contract.
25 Aug, 2020

LONDON: Copper prices steadied on Tuesday as uncertainty about demand prospects triggered some profit taking, while historically low inventories and a weaker dollar provided support.

Benchmark copper on the London Metal Exchange traded up 0.1% to $6,525 a tonne in official rings. Prices of the metal used widely in the power and construction industries have traded around the $6,500 level since the middle of July.

"Copper is in a situation where the market needs to figure out where the balance is heading in the sense that we have seen extremely strong demand from China," said Julius Baer analyst Carsten Menke. "We also need to know how much of that demand is actually being consumed and how much is restocking."

DOLLAR: A weaker U.S. currency makes dollar-denominated metals cheaper for consumers using other currencies, which could boost demand. It could also increase costs for producers in other currencies that are appreciating against the dollar.

"Dollar weakness is cyclical not structural and it is primarily against the euro," Menke said. "Emerging market currencies are still weak against the dollar and you can't say costs in those metal producing countries will rise."

INVENTORIES: Stocks of copper in LME registered warehouses have tumbled to 14-year lows at 95,525 tonnes and compare with a number above 250,000 tonnes in May.

Worries about copper supplies on the LME market have since the start of July created a large premium for the cash over the three-month contract. It rose to $25 a tonne in late July and closed at $17.80 a tonne on Monday.

NICKEL: Three-month nickel earlier touched $14,965, the highest since November last year, on worries about supplies for China's stainless steel mills.

"Recently nickel laterite ore prices have been continuously rising amid declining inventories at Chinese ports," ING analysts said in a note.

"Stainless steel margins have also improved recently, which should be supportive for nickel demand."

OTHER METALS: Aluminium was up 0.2% at $1,773.5 a tonne, zinc gained 1.8% to $2,490, lead rose 1.3% to $2,005, tin climbed 0.3% to $17,365 and nickel was little changed at $14,923.

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