Copper gains around 1%

[] — COPPER futures rose 1% on Wednesday, with prices in London and Shanghai reversing early losses in a choppy trading pattern that is set to continue as investors weigh increasingly positive data against fears the rally is overdone.

Metals prices have surged this year — copper and lead have rallied almost 110% since January — and even aluminium, the weakest of the LME constellation, has risen 24%.

But a slide of 3% in oil on Tuesday, crude’s biggest one-day loss since August 14, a near-4,000 tonne copper stock rise and worries that Chinese demand for industrial raw material is slowing from its record pace in the year to July, sparked profit-taking across the frothy sector.

“The London guys got a little nervous that the market was overcooked. The RSI in copper has been pretty high and the slower tempo in imports probably spooked a few of the longs to cash out,” a dealer in Singapore said.

“But sentiment here is a bit more positive. The recovery continues. U.S. data is moving from ‘less worse’ to ‘more better’, if you’ll excuse the grammar.”

U.S. data on Tuesday included better-than-expected consumer confidence numbers for and a second monthly rise in home prices, Wednesday will see Germany’s IFO survey, U.S. durable goods orders for July, new home sales and building permits.

The dealer doubted the market had much room on the upside — investors have priced in a lot of positive news — but he expected a period of consolidation that would cement current ranges, with copper trading in a broad band between $5,700 and $6,700 over the next four to six weeks.

Copper for three-month delivery on the London Metal Exchange rose $51 to $6,362 a tonne at 0700, having dipped to $6,240 in early trade and later peak at $6,390. Copper closed down 1.7% in the previous session.

Shanghai copper rose 1.3%, or 620 yuan, to 50,020 yuan, having dropped to 49,000 yuan in early trade. The discount for Shanghai copper has halved in the past 2 days to 823 yuan, accounting for China’s 17% VAT and if the trend continues merchant might again gear up to import spot material.

Sentiment in Shanghai was underpinned by the reversal of a 1.5% early loss in Chinese equity markets, which rallied 1.8%, lifted by a recovery in property shares.

But data shows the link between the markets is patchy. The correlation factor between the two over the past 30 days was -0.38, or an inverse relationship, meaning that when one rose the other fell.

“It’s a volatile market at the best of times. There has been talk of monetary tightening in China, informally at least,” a trader in Hong Kong said.

“People are desperate for direction, and may think the Shanghai composite is where that direction may show up first.”

Aluminium rose $10 to $1,910, while lead, which jumped 8.7% on Monday and a further 1.8% on Tuesday, extended gains, rising to $2,080, a level last seen in
late September. By 0700 GMT lead was back at $2,075, up $14 from Tuesday.

A spate of smelter closures in China’s Henan province and checks in other provinces have sent prices soaring and analysts warned there could be more lead closures in China, as officials clamp down on polluting smelters in the region.

“The cuts are certainly shoring up prices. Support is around $1,980 — the lows reached on Tuesday, and $2,090 to $2,100 is the upside target,” the Hong Kong dealer said.

“Again, we are taking a close look at China and we could break those upper levels if we see the cuts widen.”

Physical traders said there had not yet been a rush for physical lead, but the discount or contango for cash metal has narrowed to $17 from $24 last week.

Out past November, lead was trading in a small backwardation, which investors will monitor closely.

“If we start to see tightening nearby, the market will definitely sit up and take notice,” the Hong Kong trader said.