SINGAPORE - Copper prices pared losses in London and Shanghai but markets may break higher if the dollar picks up downside momentum and the economic numbers continue to improve.
The dollar resumed its weaker tone versus the euro after a modest blip higher off a year-low in the previous session but the outlook for the greenback, which traders say may slip to $US1.50 against the single currency in the next month, would underpin commodities.
"The dollar is in a long-term downtrend, which is contributing to copper's uptrend. Copper is trading in a range, but if it breaks, we think it will be to the upside," a dealer in Singapore said.
He added: "But to get through resistance we may need something more than currencies. People are talking about a pick-up in Western demand that will offset falls in Chinese imports that could send it up toward $US7,000."
After the Federal Reserve left rates on hold but said the economy was recovering, Thursday's data radar will be tuned to U.S. existing home sales for August while on Friday the market will look out for new home sales and durable goods orders.
Three-month copper on the London Metal Exchange rose $US9 to $US6,135 a tonne by 0706 GMT, recovering from the previous session's 2.3 per cent loss and off an early low of $US6,085.
Shanghai's benchmark third month ended 10 yuan down at 48,210 yuan having dipped as low as 47,560 yuan.
"We may see some short-term weakness in prices, with support at $US5,700 where people should step in and buy," said Ben Westmore, commodities economist at National Australia Bank, adding that slowing Chinese imports might be the trigger.
"But I don't think that slowdown will be sustained."
China's refined copper imports fell 25 per cent in August from the previous month, data on Tuesday showed, to 219,731 tonnes and well down from June's all-time high, but still the seventh highest inflow on record.
Much of the year's record imports have gone to replenish stocks. China's government- and privately-held copper stocks may be at nearly 1.2 million tonnes, an analyst at a state-backed research group estimated. The estimated stocks included the State Reserves Bureau's purchase of 235,000 tonnes.
Around 100,000 tonnes of material is sitting in Shanghai Futures Exchange warehouses and a trader who recently toured private bonded warehouses in the city estimated an additional 100,000 tonnes were held in storage.
"If this is a the case, the number isn't that high - the SRB won't sell anytime soon, nor will the speculators who have amassed material as an inflation hedge," a second trader in Singapore said.
"Right now copper is freely available in China and elsewhere, but with growth prospects on the rise and the start of the seasonal drawdown in stocks just a couple of months away, I don't think people should be complacent about inventories."
LME copper stocks rose 175 tonnes to 331,950 tonnes.
LME aluminium ticked down $US11 at $US1,862, but Shanghai metal was steady, unchanged at 14,875 yuan.
"Sentiment seems to be strong around motor vehicle output," Westmore said.
"Auto production was initially triggered by government stimulus, but we think output will continue going forward. Lead is also facing some uncertainty about production, plus inventories are comparatively low which should support.
Lead fell $US35 to $US2,205, but is up 120 per cent on the year, making it the strongest performer amongst base metals.
Aluminium, by contrast labouring under 3.6 million tonnes of LME stocks - enough to supply global demand for more than a month - is the weakest performer, up 21 per cent on the year.
