London copper sagged on Tuesday as a stronger dollar clipped the gains from short-covering in the previous session, while traders waited for signs of demand from China, the world’s top copper user, after last month’s long holiday.

The dollar scaled a near 12-year peak against the euro on Tuesday, as the underlying theme of monetary policy divergence held sway, making commodities more expensive for the holders of other currencies and exacerbating price pressure after soft trade data this week cast a shadow over metals demand.

“We are expecting a very strong ramp-up in state power grid tenders from April. That should boost demand for wire rod. But we expect real estate and machinery sectors to be weak near-term,’’ said analyst Ivan Szpakowski of Citi in Hong Kong.

“For prices, a key catalyst is macro sentiment, which is bearish on China and Europe right now. We need to see an improvement in one of those for prices to move higher.’’

Investment by the State Grid Corporation of China is expected to grow 9 per cent this year. Demand from the power sector accounted for nearly half of China’s estimated 8.7 million tonnes of refined copper consumption last year.

China’s consumer price inflation

China’s annual consumer price inflation recovered in February, exceeding expectations, but producer prices continued to slide, underscoring weakness in the economy and intensifying pressure on policymakers to find new ways to support growth.

Three-month copper on the London Metal Exchange sagged by 1 percent to $5,813 a tonne by 0719 GMT, eroding a 2.2 per cent gain in the previous session.

The most traded May copper contract on the Shanghai Futures Exchange pared an advance to 42,230 yuan ($6,744) a tonne, having hit a one-week high overnight.

A severe drought in top metals miner Chile is fanning supply risks for copper.

Zinc prices may recover

In news, Japan’s biggest zinc smelter, Mitsui Mining and Smelting Co Ltd, expects the zinc price to recover toward $2,300 a tonne in the second half because of a likely deficit in the global refined zinc market through 2017.

Much of China’s loss-making metals industry such as aluminium plants have been subsidised by local governments looking to boost economic growth, but this source of credit may be under threat.

China’s plan to run its biggest fiscal deficit since the global financial crisis may help develop its bond market, but the extra competition for funding could sink some of the major providers of local government financing.

The Federal Reserve should promptly end its easy monetary policy and press ahead with an interest rate hike, the head of the Dallas Fed had said on Monday.

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