Copper rises on declining stockpiles, gains capped on Fed comments

Copper rose on Tuesday amid decrease in Chinese stockpiles in the four months through July. Gains remained in check as Fed Dallas President Richard Fisher said yesterday the central bank is closer to tapering Quantitative Easing.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.203 a pound at 9:16 GMT, up 1.13% on the day. Prices ranged between days high and low of $3.207 and $3.148 a pound respectively. The industrial metal slipped 0.12% on Monday but todays gains brought prices back to positive territory, extending their weekly advance to over 1.0%.

Copper was pressured on Monday and Tuesday amid growing speculation Fed may after all start decelerating its monetary easing program in September, despite the weak U.S. payrolls data on Friday. Yesterday, the Institute for Supply Management reported that the U.S. services sector rose with a lot faster pace in July than in June, hitting a five-month high. The ISM Non-Manufacturing Composite index surged to 56.0, well above analysts’ expectations for a jump to 53.1 from June’s 52.2 figure. Sixteen out of eighteen sectors that are tracked for the preparation of the index have marked an expansion in July, compared to fourteen in June. This boosted the U.S. economy’s recovery prospects, spurring speculation Quantitative Easing may be tapered in September, as many analysts project.

According to a Bloomberg survey of analysts last month, fifty percent of the 54 economists asked expect Fed to taper its Quantitative Easing program in September. The survey was also backed by Federal Reserve Bank of Dallas President Richard Fisher who said yesterday in Portland, Oregon: “Financial markets may have become too accustomed to what some have depicted as a Fed ‘put. Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious misallocation of capital.” He announced that the central bank is getting closer to tapering the monetary easing program.

Meanwhile, speculation over tapering of the bond purchasing program was offset by data which showed copper stockpiles in Chinese bonded warehouses fell by 63% to 300 000 tons in the four months through July. LME copper inventories dropped by 0.3% to 606 900 tons. Orders to remove the metal from warehouses surged 2.3% to 324 000 tons, the most since June 27.

Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul, said for Bloomberg: “Everyone is speculating when Fed may reduce stimulus and that’s the key driver for all markets. A decline in stockpiles on the LME and China’s bonded warehouses would limit a further decline in prices.”

Market players are looking ahead at this week’s U.S. data to further gauge the recovery pace of the world’s top economy. On Tuesday, June’s Trade Balance deficit is expected to have narrowed to $43.500 billion from May’s $45.027 billion. On Wednesday, U.S. Consumer Credit indicator will likely show a decline to $15 billion in June, down from May’s $19.615 billion. Thursday’s Initial Jobless Claims are expected to have risen by 9 000 to 335 000 in the week ending August 3.