LONDON: Copper prices snapped back on Thursday after touching their lowest in 2-1/2 months, tracking a recovery in the currency of top metals consumer China after support measures.
Three-month copper on the London Metal Exchange (LME) was up 0.8% at $8,235 a metric ton by 1549 GMT after hitting $8,120 for its lowest since June 1.
US Comex copper futures gained 0.7% to $3.69 a lb.
The gains followed China’s central bank injection of more liquidity into the market to support financial assets while major state-owned banks sold dollars to buy yuan.
“The bounce in the renminbi is why we are seeing the bounce in copper,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
“We have a correlation between copper and the offshore renminbi of close to 90, based on concern about the Chinese economy and the outlook for demand. I haven’t seen a correlation this high for a while.” Hansen said copper had initially slid on worries that Federal Reserve minutes will fan fears that further increases to US interest rates may be required.
At Thursday’s low, LME copper had shed more than 8% since its early August peak. Copper had surged in July on hopes for more stimulus in China but then fell back owing to the slow pace of government measures.
Supporting Thursday’s gains was a weaker dollar index . Weakness in the US currency makes dollar-priced commodities cheaper for buyers with other currencies.
But Hansen said copper was at risk of deeper losses.
“It would have to break above $8,400 as a sign of a change in the negative sentiment and momentum that’s currently weighing on the market.”