London copper pauses after rally

[] — London copper fell nearly 1% percent as investors paused after a recent rally pushed the price to nine-month highs, but they remained mostly bullish, encouraged by an improving outlook on demand and economic

Brightening the economic outlook, U.S. home sales rose for the third straight month in June and prices hit their highest level since October, fuelling hopes the housing sector is on its way to recovery.

On the stock market, the Dow pushed above the key 9,000 mark for the first time since January, thanks to strong corporate earnings, besides the rebounding home sales.

“The overall sentiment in the metals market has improved a lot,” said Yingxi Yu, an analyst at Barclays Capital. “It has not much to do with the dollar, but follows stock markets closely, as the second quarter’s corporate earnings were broadly better than expected, improving outlook on the economy.”

The price of the copper, used in power and construction, has gained 10% so far this month.

Shanghai’s benchmark third-month copper futures contract was little changed, at 43,450 yuan a tonne, on course for a 4% gain from a week earlier.

The most-active contract for November delivery edged up 0.2% to 43,470 yuan a tonne.

“Copper may go through a brief correction, but prices won’t fall sharply, as speculative bulls are still around,” said Wang Zhouyi, an analyst with Shanghai CIFCO Futures.

Copper supply concerns also underpinned the bullish sentiment. Violence was reported near Freeport-McMoRan’s massive Grasberg mine in Indonesia, and a power problem occurred at Anglo American’s Chilean Collahuasi copper mine, but so far neither has reported serious production disruptions.

Echoing the nervousness on supply, Japan’s copper smelters have agreed to a one-third cut in processing fees from miners for the year starting in July, as tight supplies of copper concentrate heated competition among smelters for the raw

“Despite these supply-side concerns, we find it hard to make the case for anything approaching a runaway bull market in copper (or any of the metals for that matter) given the still sluggish rate of growth noted in most economies,” said analyst Edward Meir at MF Global in a research note.

London copper’s RSI, or Relative Strength Index, was at 70.7 and indicated the contract was overbought. In addition, LME stocks have been inching higher, which might give bulls some pause in the days ahead, Meir added.