Copper hits 3-week high on QE outlook, drop in inventories

Copper extended Wednesdays gains and hit a three-week high after policy makers decided to keep Feds monthly bond purchases intact. Meanwhile, the metal also drew support following a 10th consecutive drop in inventories monitored by the LME.

On the Comex division of the New York Mercantile Exchange, copper futures for delivery in December rose by 1.78% to $3.337 per pound at 8:27 GMT. Prices held in range between days high of $3.345 per pound, the strongest level since August 28, while days low stood at $3.312. The industrial metal rose by 2.8% on Wednesday and extended its weekly advance to little over 3.6%.

Dollar-denominated commodities received a strong boost yesterday after the U.S. dollar fell to a seven-month low as the Federal Reserve decided to keep its monetary easing program unchanged, confounding broad market expectations for a $10 billion reduction. According to a statement after the conclusion of FOMC’s two-day meeting, policy makers “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.” Chairman Ben Bernanke and his colleagues feared that the rising borrowing costs were showing signs of slowing the four-year expansion of the U.S. economy. Data showed on Tuesday that consumer inflation was struggling to pick up and remained well below Fed’s target at 2%. Bernanke once again said that there is “no fixed calendar schedule”.

Tetsu Emori, the chief fund manager at Astmax Asset Management Inc. in Tokyo, said for Bloomberg: “The FOMC’s decision was a surprise to all markets. Copper was also supported by declining stockpiles.”

Data showed that stockpiles monitored by the London Mercantile Exchange dropped for a 10th session in a row and have declined 5.3% since September 4. Data by the Shanghai Futures Exchange showed that stockpiles monitored by the bourse fell by 5 816 tons to 151 987 tons this week.

Supporting the metals demand prospects, data showed on Monday that U.S. industrial production in August has matched analysts projections for a 0.4% expansion, compared to remaining flat in July. On Tuesday, The Euro zones ZEW Economic Sentiment index surged to 58.6, surpassing economists’ expectations for a moderate gain to 47.2 from August’s 44.0 reading. Meanwhile, The Conference Board reported that its Leading Economic Index for China rose by 0.7% in August and stood at 269.3. This comes after a 1.4% advance in July and 0.8% increase in June. Five of the six components of the index contributed positively to the reading. Meanwhile, The Conference Board Coincident Economic Index, which measures current economic activity, rose by 1.2% in August to 248.7 after gaining 1.1% both in July and in June. All five components added to the positive value of the index.