Copper prices rose overnight as a lower dollar and higher equities triggered fund buying, but worries about the US-China trade dispute and about demand growth in top consumer China are expected to cap gains.
Benchmark copper on the London Metal Exchange ended 0.8 per cent higher at $US6,235 a tonne.
The price of the metal, used widely in the power and construction industries, hit a two-week high of $US6,296 on Tuesday.
‘The weaker dollar and the stock market recovery are supporting factors,’ a commodity-focused fund manager said.
‘Fears about global growth due to the trade dispute will be a negative for all assets that rely on growth.’
Worries about trade were further reinforced after the US said China has failed to alter its ‘unfair’ practices, ahead of a meeting next week between US President Donald Trump and Chinese President Xi Jinping.
A fall in the dollar, which makes dollar-priced commodities cheaper for holders of other currencies, was helping industrial metals.
The relationship is used by funds known as commodity trading advisors which trade using buy and sell signals from numerical models.
Traders are keeping a close eye on positions holding large amounts of LME copper warrants and cash contracts, which is fuelling nervousness about nearby availability.
This can be seen in the premium for the copper cash and three-month contract, now around $US22 a tonne.
The country accounts for nearly half of global demand, which is estimated at around 24 million tonnes this year.
‘Fundamentals are little changed, amid steady demand and somewhat sluggish supply, resulting in a broadly balanced market,’ Barclays analysts said in a note.
‘We forecast China to slow but not collapse and this to lead to lower rates of demand growth from a very large absolute base.’
A recent Reuters survey showed the copper market was expected to see a small surplus of 13,500 tonnes this year and a small deficit of 44,000 tonnes in 2019.
Strong support for copper comes in at $US6,150 to $US6,160, near the 21, 55, and 100-day moving averages.
The premium for the zinc cash contract over the three-month contract hit a 21-year high of $US97 a tonne due to falling stocks in LME-registered warehouses on Tuesday.
It was trading around $US94 on Wednesday.
At 123,275 tonnes, stocks have more than halved since August 13.
The three-month zinc price closed 0.7 per cent higher at $US2,568 a tonne.
Aluminium rose 0.7 per cent to $US1,953.5, lead added 2.3 per cent to $US2,006 and tin slipped 0.8 per cent to $19,240.
Nickel fell 0.7 per cent to $11,020 after hitting an 11-month low at $US11,010 during the session.