Copper this week built on its recent gains, rising nearly 2% on expectations of higher demand should China expand—and the U.S. resume—efforts to stimulate economic growth.
The futures fell slightly Friday, backing off the prior day's one-month high as traders cashed out on renewed concern about Europe's financial crisis amid a summit of Greek and German leaders.
Copper for September delivery, the most actively traded contract, fell 0.9 cent, or 0.3%, Friday to settle at $3.4835 a pound on the Comex division of the New York Mercantile Exchange. Thinly traded August futures fell 0.8 cent, or 0.2%, to $3.488 a pound.
China's central bank injected $43.9 billion into the money market this past week, the most in seven months, as it seeks to stir economic activity. The country accounts for about 40% of global copper consumption, and weak readings on industrial production and manufacturing have spurred beliefs Beijing will add more liquidity to stoke growth.
Investors' expectations of a cash infusion from the Federal Reserve were raised as details from the bank's latest policy-making meeting showed officials leaning toward stimulus action unless the economy improves. Some expect similar moves from the European Central Bank.
"Either more growth or more liquidity will drive prices higher," Jason Schenker, president of Prestige Economics, said in a report. "And at least one of those is likely to increase in the second half of 2012."
Copper is used in a range of products, including automobiles, appliances and heavy-duty power cables, making prices sensitive to changes in the economic-growth outlook.
Weak physical demand for copper in China has been largely offset by expectations that supply will remain constrained. Mining companies have tried to ramp up production to take advantage of prices that are high by historic standards but have been hampered by geologic challenges as the quality of copper ore declined.
Those conflicting forces, and summer vacations in the U.S. and Europe, have left the metal in lackluster, sideways trading. But it is up 6.2% since futures hit a five-month low in June.
Freeport-McMoRan Copper & Gold Inc. FCX -1.74% and Rio Tinto RIO.LN -1.59% PLC both reported lower copper production during the first half. Officials at the giant Collahuasi mine in Chile, controlled by Anglo American AAL.LN -2.91% PLC and Xstrata XTA.LN +0.12% PLC, have warned output will fall short of last year's pace.
In the first five months of the year, refined copper supply fell short of demand by 21,000 metric tons, the International Copper Study Group said this week.
Kurt Pfafflin, a senior broker with Daniels Trading in Chicago, said economic growth will have to pick up for copper to sustain its gains. "Ultimately, governments are going to do what they can" to support growth, he said. But "we're going to have to see better numbers coming out of the U.S. and China."
