Copper rises to two-week high on hopes Britain to stay in EU

MELBOURNE (Reuters) - London copper rose to its highest in two weeks on Wednesday as safe-haven demand for the dollar fell on hopes that Britain will vote to remain in the European Union.

A softer dollar, which makes commodities cheaper for buyers paying with other currencies, also triggered a volley of short-covering ahead of the vote, traders said.

“Investors remain cautious despite recent polls suggesting the chances of the UK leaving the EU had fallen,” ANZ said in a commodity note.

The dollar erased its early modest gains on Wednesday while sterling stood tall on the eve of Britain’s referendum on whether to remain in the European Union.

Three-month copper on the London Metal Exchange climbed by 1 percent to $4,716 a ton by 0710 GMT, having earlier topped out at $4,725 a ton, the highest since June 6.

Shanghai Futures Exchange (ShFE) copper ended the session up 1.6 percent at 36,260 yuan ($5,504) a ton. Signaling shorts closing out positions, market open interest has shrunk to its lowest in nearly two months, ShFE data showed.

Copper’s outlook has been darkened by a surplus of supply, leading traders to their short positions, or bets that prices will fall. China, the world’s top producer of the refined metal shipped out a surfeit of metal at home. China exported 84,959 tonnes of copper in May, up by 256 percent from the same month last year.

“The (export) jump has largely been prompted by Chinese refiners shipping metal into the bonded warehouse network, which is in turn being exported in order to keep the domestic market tight amid rising domestic refined production, which has ... supported the draw downs in ShFE copper inventories,” Citi said in a note.

The total net-long position of funds trading copper on the London Metal Exchange fell to 4,163 lots last Friday from a net-long position of 9,837 lots the previous week, the LME’s Commitments of Traders Report (COTR) showed on Tuesday.

Meanwhile, China is considering allowing local commercial banks to participate in offshore yuan trade, the central bank said, as the country looks to project greater influence in the offshore currency market.

The Fed’s ability to raise interest rates this year may hinge on a rebound in hiring that would convince policymakers the U.S. economy is not faltering, Yellen told lawmakers on Tuesday.

Reporting by Melanie Burton; Editing by Joseph Radford and Christian Schmollinger