Copper futures swing on Yellen comments, disappointing Euro zone growth

Copper swung between gains and losses on Thursday after President Barack Obama’s nominee to lead the Federal Reserve, Janet Yellen, backed Fed’s monetary easing program and curbed speculations for an earlier-than-expected stimulus tapering, supporting dollar-denominated commodities. Overall disappointing economic growth in the Euro zone however dimmed consumption outlook. Expectations for increased global output and supplies outstripping demand in 2014 further weighed on sentiment.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December fell by 0.09% to $3.157 per pound by 10:05 GMT. Prices fell to a session low of $3.154 per pound, close to yesterdays 3-1/2-month low of $3.153, while days high was touched at $3.183 a pound. The industrial metal declined by 1.7% on Wednesday, the most since October 23, and was down 3.1% on weekly basis on Thursday.

Copper drew support on receding concern over an earlier-than-projected deceleration of Fed’s quantitative easing program after Fed Vice Chairwoman Janet Yellen said she thinks the central bank has more work to do to aid the economy, backing the current pace of Fed’s monthly bond purchases.

“Our country has come a long way since the dark days of the financial crisis, but we have farther to go. Likewise, I believe the Federal Reserve has made significant progress toward its goals, but has more work to do,” Yellen said.

She called last month’s 7.3% unemployment rate too high, noting the economy and labor market were performing short of their potential, while inflation remained well below Fed’s 2% target and provided room for easy money supply. Yellen will be holding a Senate committee hearing at 15:00 GMT on Thursday and will provide further information regarding Fed’s tapering timetable.

Ye Fengwei, an analyst Wanda Futures Co., said for Bloomberg: “Yellen’s comments signal that we still have a way to go before the Fed begins tapering stimulus, which is positive for metals.”

Earlier in the week, Federal Reserve Bank of Atlanta President Dennis Lockhart said in a statement he wouldn’t rule out a so-called tapering of Fed’s quantitative easing program at FOMC’s December 17-18 policy meeting. However, he added that inflation remained low and would want to see it moving toward the 2% target. He called for “continued strong stimulus” and said the central bank wants to see economic growth reach 3% or more, a faster pace than its long-term trend.

Meanwhile, Federal Reserve Bank of Minneapolis Narayana Kocherlakota shared Lockhart’s opinion and spoke even more strongly on the need for monetary stimulus. He said the central bank should continue with its aggressive action and not scale back the program to safeguard the economy and ensure its recovery. The Federal Reserve should do “whatever it takes” to bring the economy back to full employment quickly, he said.

Europe GDP data, long-term demand

The metal however was pressured following disappointing GDP and retail sales data from Europe, indicating reduced demand outlook. Frances economy expanded by 0.2% in the third quarter from a year earlier, trailing expectations for a 0.3% advance and the preceding three months 0.5% growth. Germany managed to partially offset the bad news. Year-on-year, the leading EU economy grew by 1.1% in the third quarter, according to a preliminary reading, beating expectations for a 1.0% expansion following the previous three months 0.9% gain. On quarterly basis, growth slowed to 0.3% from 0.7% in the second quarter.

Italys GDP reading matched expectations and marked a 1.9% contraction on annual basis after the countrys economy shrank by a revised 2.2% in the previous quarter, a preliminary estimate showed. Also fanning negative sentiment, Great Britains retail sales fell by 0.7% in October from a month earlier, defying projections for remaining flat after they advanced by 0.6% in September. Year-on-year, sales surged by 1.8%, underperforming expectations for a 3.1% expansion. The previous months gain was revised down to 2.0% from initially estimated at 2.2%.

The Euro zones GDP growth matched projections and slowed to 0.1% on quarterly basis, down from 0.3% in the three months through June. Year-on-year, the single currency blocs economy shrank by 0.4% following a 0.5% decline in the second quarter and underperformed expectations for a 0.3% contraction.

Copper also continued to be pressured on expectations global supply will outstrip consumption in 2014. According to Pan Pacific, world supply will exceed demand by 305 000 tons in 2014 and mine output will surge by 13% to 16.2 million tons.

Standard Bank Plc said in a report last month that global supply of mined copper will jump by at least 4% on annual basis through 2016, compared to less than 1% in four of the six years to 2012.