Copper hits 2-week high, encouraged by US-Mexico agreement, weaker dollar

LONDON — Copper prices climbed to two-week highs on Tuesday as the US-Mexico trade deal raised hopes for an agreement between the United States and China and as the dollar slipped.

Benchmark copper on the London Metal Exchange (LME) ended up 0.7% at $6,147 a ton, having touched a session high of $6,167. It is up about six percent since crashing to a 14-month low of $5,773 a ton on Aug. 15.

“The agreement with Mexico is part of it, though there is no fundamental link between USMexico negotiations and industrial metals, and the dollar is softer again,” said Julius Baer analyst Carsten Menke.

“Striking a deal with China will be much more difficult.”

The US and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the threenation pact.

The lower US currency makes dollar-denominated metals cheaper for non-US firms, which potentially should boost demand.

China is the world’s largest copper consumer, accounting for nearly half of global demand at around 24 million tons. Ample supplies and worries about Chinese demand are why funds have short positions or bets on lower prices.

“Risk factors like the possibility of strikes at copper mines in Chile have been averted,” Mr. Menke said.

“The copper net speculative short position climbed week on week to 23% of open interest or 38,000 lots,” Marex Spectron analysts said in a note.

“This is still lighter than the recent peak short of 30% of open interest registered on the 19th July, which goes back to January 2016 levels.”

Canceled warrants or metal earmarked for delivery in warehouses registered with the LME have surged to a one-year high at 132,200 tons, nearly 50% of the total at 268,175 tons.

Canceled warrants on Aug. 16 were below 25,000 tons.

Traders say the canceled metal is heading for China as prices in Shanghai Futures Exchange at around $7,150 a ton are much higher than on the LME and the gap is wide enough to cover shipping, taxes and make a profit.

Worries about shortages on the LME market have seen the discount for the cash over the three-month contract narrow to below $14 a ton from $42 a ton on Aug. 15. Aluminum ended up 1.8% at $2,133.50, zinc rose 0.2% to $2,540, lead slipped 0.1% to $2,082, tin gained 0.3% to $19,055 and nickel added 1.9% to $13,675. —