Copper futures swing on Fed stimulus outlook, inventories drop

Copper swung between gains and losses on Thursday after falling for two days as investors weighed prospects for increased demand in the U.S. and falling inventories tracked by the LME against speculations for an earlier-than-expected deceleration of Feds quantitative easing program. A weaker dollar supported prices.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in March traded at $3.196 per pound at 10:57 GMT, up 0.16% on the day. Prices varied between days high of $3.209 and session low of $3.185, near yesterdays one-week low of $3.180 a pound. The industrial metal fell by 0.4% on Wednesday, a second daily decline, but trimmed its weekly loss to little over 0.7% on Thursday.

Copper fluctuated after overall positive key data from the U.S. released on Wednesday supported the metals demand prospects in the worlds second biggest consumer, but also spurred speculations the Federal Reserve might trim its monthly bond purchases earlier than previously projected.

The Labor Department reported that the number of Americans who filed for initial unemployment benefits fell by 10 000 to a two-month low of 316 000 in the week ended November 23, defying analysts’ projections for an increase to 330 000. Applications for the previous week were revised up by 3 000 after being initially estimated at 323 000.

The four-week moving average, which smooths out weekly volatility, fell by 7 500 to 331 750, indicating a steady improvement in the U.S. labor market.

However, a report by the Commerce Department showed that demand for non-defense capital goods orders ex aircraft, a gauge for future business investment in computers and other equipment, fell by 1.2% in October after they retreated by 1.4% in September, suggesting economic growth may slow in the fourth quarter.

A private report showed rising consumer confidence, backing the case for an earlier-than-expected Fed tapering. The Thomson Reuters/University of Michigan final index of consumer sentiment jumped to 75.1 in November after plunging to an eight-month low of 72.0 in October. Analysts expected a moderate rebound to 73.5.

Tetsu Emori, a senior fund manager at Astmax Asset Management Inc. in Tokyo, said for Bloomberg: “An improving U.S. economy has two opposite effects. Yesterday’s U.S. data boosted demand prospects, while stoking speculation the Fed will taper stimulus soon.”

The metal however drew support as inventories tracked by the London Mercantile Exchange fell for an 18th straight session to 431 900 tons, the lowest since February 25.

An official report showed profits of Chinese industrial companies jumped by 15.1% in October from a year earlier, down from an 18.4% increase a month earlier.

A weaker dollar also eased pressure on the metal. The U.S. dollar index, which measures the greenback’s performance against a basket of six major peers, traded at 80.63 at 11:02 GMT, down 0.12% on the day. The December contract varied between day’s high and session low of 80.76 and 80.56. The U.S. currency gauge jumped 0.1% on Wednesday but plunged to negative weekly territory following Thursday’s decline. Weakening of the greenback makes raw materials denominated in it cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Gains however remained limited by preliminary estimates for a widening global surplus in 2014. According to Barclays Plc and the International Copper Study Group, supplies are expected to exceed consumption next year, resulting in a glut that may almost triple to a 13-year high of 272 000 tons.

Data by the International Copper Study Group showed the global market for refined copper swung to a surplus of 21 000 tons in August due to higher output after running at a deficit for three months.