Copper prices bounced off six-year lows yesterday to post the biggest one-day gain in three months, amid profit-taking, a weaker dollar and growing confidence in the capacity of Beijing to reverse the nosedive of China’s equities market.
Copper futures for September delivery on the New York Mercantile Exchange had climbed 1.34 percent to $2.530 per pound as of 07:00 BST today, adding to the 2.09 percent gain from yesterday.
Traders deemed the steep, eight-percent drop in the red metal’s price since Monday to be overdone. Copper has only made a partial recovery, however, and traders caution that the coming days will be crucial.
"After the significant moves we saw yesterday, inevitably there is profit-taking," Nicholas Snowdon, metals analyst at Standard Chartered, said as quoted by Reuters. "But there is still extreme uncertainty with regards to both the Greek crisis and China's stock market, which could still potentially weigh on prices if not resolved in a positive way."
Yesterday, Beijing introduced fresh measures in a bid to halt the 30 percent slide of the Shanghai stock exchange since the June 11 high. Authorities banned shareholders with stakes larger than five percent to sell shares, adding to previous actions which included a suspension of new listings and the enlistment of funds to buy shares.
As a result of the latest measures, the Shanghai Composite Index surged 5.79 percent to 3,710.24 points as of 07:10 BST today, reversing Wednesday’s near-six percent drop. The gauge is still some 30 percent lower on a monthly basis, however, and analysts remain cautious.
“The sentiment has stabilized a bit near-term, but the next couple of days will be key,” Xiao Fu, head of commodity strategy at Bank of China International in London, said as quoted by Bloomberg.
China is the foremost consumer of industrial metals. It accounts for some 45 percent of the global demand for copper for example. As such, turmoil in the country’s markets profoundly affects base metals, as well as the mining companies related to them.
Meanwhile, copper was also supported by a weaker dollar yesterday. The US Dollar Index, which measures the greenback against a basket of six other major currencies, fell 0.63 percent on Wednesday, and was down further 0.23 percent as of 07:28 BST today.
A weaker greenback makes dollar-denominated commodities, such as copper, less expensive to holders of other currencies, lifting demand.
Minutes from the Federal Reserve’s June meeting revealed that central bankers were still cautious about raising the federal funds rate, which sapped the strength of the dollar bulls.
Analysts noted that the minutes likely signal that the eventual rate hike would take place later than in September, as had been previously anticipated.
The Fed’s bearish minutes followed an IMF assessment, which argued that borrowing costs shouldn’t rise until the first half of 2016 in the earnest.