Strong U.S. employment data last week raised the spectre of higher than expected interest rates, turning markets cautious and boosting the safe-haven dollar. Copper and equities are both bets on economic growth and their prices often move in tandem. The stronger dollar hurts dollar-priced copper by making it costlier for many buyers.
Benchmark copper on the London Metal Exchange (LME) was up 0.7% at $8,932.50 a tonne at 1718 GMT, up from Monday's low of $8,808.
Prices of the metal used in electrical wiring reached a seven-month high of $9,550.50 on Jan. 18 as the dollar fell and speculators bet that China, the biggest consumer, would bounce back from last year's economic slump.
But Chinese demand remains weak following the Lunar New Year holiday, with inventories in Shanghai Futures Exchange warehouses leaping to 226,509 tonnes from around 55,000 tonnes in December. "We're waiting for China to revive," said independent analyst Robin Bhar, predicting that rising Chinese demand, supply disruption and low global inventories would push copper towards record highs above $10,845 later in the year.
"I wouldn't envisage a deep correction," he said. "If we can consolidate in this area and build a base, I think we're ready to work higher in Q2." Meanwhile, unrest in Peru is disrupting copper supply, helping support prices. Peruvian miner Buenaventura said on Monday it had suspended operations at its Julcani mine. In the zinc market, concerns over the availability of metal on the LME have pushed prices for delivery tomorrow to a large premium over prices for delivery the following day. Inventories in LME-registered warehouses have fallen more than 90% in the last two years to 15,600 tonnes, the lowest in more than 30 years. Benchmark zinc was up 2.8% at $3,218 a tonne.
LME aluminium rose 0.1% to $2,535 a tonne, nickel gained 0.7% to $27,450, lead added 0.7% to $2,115 and tin was up 1.5% at $27,295. (Reporting by Peter Hobson; additional reporting by Mai Nguyen in Hanoi; editing by Jason Neely and Mark Potter)
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