Copper hit a three-month low on Tuesday as investors continued to fret about an end to the US Federal Reserve’s commodity-friendly stimulus programme.

Copper for delivery in three months on the London Metal Exchange fell as low as $6,910 before recovering to trade at $6,967.50.

Many investors believe copper and other base metals will struggle to make headway until there is clarity over US monetary policy.

Recent comments from senior Fed officials have pointed to an improvement in the US economy, fuelling expectation that the US central bank is moving close to reducing the pace of its $85bn a month bond buying programme. The Fed could make such a move at its next meeting in December.

Copper, which is viewed by some analysts as a barometer of the global economy because of its widespread use in electrical wiring, has fallen just over 12 per cent this year. This reflects concerns over US monetary policy and a well supplied market.

Output from the world’s top 10 copper mines, which include BHP’s Escondida mine in Chile and Freeport-McMoRan’s Grasberg mine in Indonesia, is expected to rise.8 per cent this year and a further 5 per cent in 2014

Since August copper has traded between $7,000 and $7,400. But last week the metal finally broke out of that narrow trading range. The move surprised many traders because the US dollar weakened over the period and recent economic data from China, which accounts for around 40 per cent of global copper consumption, has been strong.

“The question is whether this is just a short term blip, the start of a further deterioration in prices or copper drifting to a new lower orbit trading zone,” said Leon Westgate, analyst at Standard Bank.

While the market is well supplied, some analysts say the surplus is in concentrate and this will take time to feed into the refined market.

“Recent problems at Pasar [Glencore’s copper smelter in the Philippines] and some question marks over Chinese production numbers, along with continuing high levels of physical premiums, suggest that refined supply is fairly balanced relative to demand,” added Mr Westgate.

“Rather than the start of capitulation, we believe that copper prices are, at worst, settling into a new sideways trading range of around $6,900, with the risk to the upside into the year end,” he said.

The outlook beyond the end of the year is less positive. Most analysts expect copper supply to outstrip demand over the next couple of years and for the surplus to weigh on prices. Citi, for example, expects the LME copper price to average $6,650 in 2014.

“In terms of 2014 price trajectory, we continue to forecast prices falling through the year, under pressure from… rising production/inventory levels on the one hand and a strengthening dollar on the other,” analysts at the bank wrote in a report published earlier this week.

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