Reuters reported that London copper inched up after a prominent US lawmaker expressed confidence the world's top economy would avert a looming fiscal crisis but worries China's return to growth will be sluggish weighed on sentiment.
Three month copper on the London Metal Exchange edged up 0.35% to USD 7,792 per tonne by 0720 GMT. Prices fell half a percent on Wednesday. Gains were subdued as investors were reluctant to make bets given the uncertainty over roughly USD 600 billion in year end US tax hikes and federal spending cuts known as the fiscal cliff that could tip the country back into recession.
Mr Thomas Lam chief economist at DMG & Partners Securities said that "We expect some degree of resolution to the US cliff but there will still be some drag on the US economy. We are expecting growth of around 2% next year."
Mr Lam said that with the United States, Japan and the euro zone focused on spending cuts and China's patchy success in turning domestic consumption as the main driver of its economy, the global economy may find it tough to muster momentum. If that's the case, then that's probably going to hold back any substantial increase in demand for metals or other commodities.
LME copper hit its highest in almost a month on Tuesday at USD 7,828.75 but is struggling to gain momentum as prospects for a year end rally start to fade. The most traded March copper contract on the Shanghai Futures Exchange rose 0.37% to close at CNY 56,390 per tonne.
ANZ in a research note said that Lingering concerns about Greek debt and the US fiscal situation are likely to limit gains to around USD 7,800 in the next few days. But US House of Representatives Speaker Mr John Boehner voiced optimism that Republicans could broker a deal with the White House to avoid year end austerity measures while President Mr Barack Obama said he hoped to reach an agreement with Congress before Christmas to avoid the fiscal cliff. Further out we still see scope for a rally on the back of improving sentiment towards China and signs that the decline in Europe's copper demand has bottomed out.
China, the world's top user of copper, could stage a tepid economic rebound in the fourth quarter as higher public infrastructure spending nudges it out of seven consecutive quarters of slowdown, but growth will remain lethargic through 2013. While signs of a pick up in China's economy may fan investor appetite for metals, the pace of real consumption growth has flattened as indicated by a rise in domestic copper stockpiles to record levels.
Senior metals executives said that copper stocks in China's bonded warehouses hit a record high of over 1 million tonnes earlier this month. Consumption of copper cathode is likely to grow more slowly in China next year, cooling further after the pace of growth looks set to drop by at least a third this year. In Europe, copper product demand is sluggish but the downtrend seen earlier this year has halted, Aurubis, Europe's biggest copper smelter.
