Copper cuts gains as Fed minutes dampen hopes for easing

A worker removes hot copper at a copper anodes and minerals plant in Paipote, Copiapo September 7, 2010.

NEW YORK/LONDON (Reuters) - Copper gains were cut in after hours trade on Wednesday as minutes from the U.S. Federal Reserve's June meeting suggested economic conditions might need to worsen before policymakers reach a consensus on more stimulus.

"A bit of a disappointment," said Peter Buchanan, commodities analyst and senior economist at CIBC in Toronto.

"They still are expecting some modest growth and some improvement in the medium term, but they didn't have that dour (economic) view, which suggests that perhaps they are not really on the cusp of further easing."

COMEX copper for September delivery last traded at $3.4145 at 2:35 p.m. EDT (1835 GM), easing back from its closing price of $3.4475 per lb.

London Metal Exchange (LME) copper also pared its gains after the close to trade at $7,539 per tonne, up $49 from Tuesday's close of $7,490 a tonne.

The minutes of the June 19-20 meeting showed a few officials on the policy-setting Federal Open Market Committee thought the recent weakening in the economy was sufficient to justify bolder action. But the report also suggested a majority was not yet on board -- at least not before last week's employment report, which showed a paltry 80,000 new jobs were created in June.

The Fed last week decided to prolong a bond maturity-extension program called Operation Twist. But many investors doubt that program's effectiveness.

The dollar rallied to fresh two-year highs against the euro following the release of the minutes, providing additional weight to dollar-denominated metals <USD/>. A stronger dollar makes commodities more expensive for holders of other currencies.

Attention will now turn to the release this week of second quarter economic growth figures from China, which accounts for around 40 percent of global copper demand.

"The (Chinese GDP) numbers are likely to be gloomy. Recent action from the Chinese has indicated that data has been softer than they anticipated, causing the interest rate cut we saw last week. It's not surprising in that light that industrial metals prices have been soft," said Ross Stratchan, economist at Capital Economist.

China's June trade data on Tuesday stoked anxiety about the strength of domestic demand in the world's second biggest economy, with attention now turning to GDP numbers which are expected to show the economy recorded its worst performance since the 2008/09 financial crisis.

WEAK NICKEL

Prices of LME nickel have fallen toward 2-1/2 year lows due to weakness in the stainless steel sector, for which nickel is a key material, and smooth exports of ore from Indonesia, which has been subject to a change in export regulations, BNP Paribas's Briggs added.

"Nickel is weak, and one can probably cite developments out of Indonesia as a factor in that exports are getting back to normal. (Authorities) seem to be issuing exports for permits at massive levels. From now until 2014 at least there seems to be not much of a risk to nickel ore supply to China," he added.

Indonesia has awarded mineral export permits to 15 nickel ore miners since it introduced curbs on such shipments in May, a trade ministry official said earlier this month after the restrictions triggered panic buying by customers in key buyers Japan and China.

Nickel ended up $50 at $16,100 a tonne. Prices hit $15,980 on June 7, the lowest since December 2009.

(Additional reporting by Harpreet Bhal in London; editing by Keiron Henderson and Bob Burgdorfer)