Copper marches on brighter prospects

[miningmx.com] — COPPER prices rose on Monday on optimism that economic recovery will lift demand for the metal next year, but gains were capped by a stronger dollar.

Nickel rose to its highest since early November despite near record stockpile levels, while zinc rallied to 21-month highs.

Benchmark copper on the London Metal Exchange traded at $6,927 a tonne from a close of $6,845 on Friday, extending a one percent rise last week.

“Most of the support is coming from the equity side – the market is basically optimistic about economic prospects,” said Eugen Weinberg, analyst at Commerzbank. “Some support comes from the oil front … funds are still pushing prices up.”

Equities, seen by some as a proxy for economic growth, broke a two-day losing run on Monday, lending support to copper, the most closely linked of all the metals to the economic cycle.

Also boosting prices, the arbitrage window between Shanghai and London has opened at around 400 yuan in favour of imports, lifting hopes that China’s imports may rise.

“While the arbitrage may only be temporary, the incentive to import is consistent with our view that Chinese copper demand is booming.

“This is expected to reduce the rate of daily stock build on the LME,” Macquarie said in a note. But the dollar capped gains. It hovered near its highest in more than three months on Monday, making dollar-priced metals more expensive for non-US investors.

Copper prices have more than doubled this year on buying by top consumer China, a weak dollar, strong fund flows and economic data signalling recovery.

But market sentiment remains undermined by stocks in LME warehouses, which rose 3,100 tonnes to eight-month highs at 479,450 tonnes, indicating still weak physical demand.

Metal stocks surge

Among other industrial metals, aluminium, used in transport and packaging, was at $2,267.75 from $2,242.

Stocks of the metal in LME warehouses fell 2,175 tonnes but remained near record levels at 4.6 million tonnes. The stockpile surge is having limited impact on aluminium prices as most of the metal is tied up in financing deals.

Also, investors are piling into the metal – which has gained around 10% since late November – because its gains this year have been subdued relative to most other metals.

Stainless steel ingredient nickel was $17,600 a tonne from $17,130, having earlier hit a six-week high of $17,790 on an announcement that Russia will reinstate a five percent export tariff on the metal.

But indicating still weak fundamentals, stocks of the metal in LME warehouses rose 2,040 tonnes to total 150,498 tonnes, near their highest ever levels.

“Nickel has been underperforming massively since August and probably on the back of this participants decided to pick it up,” said Weinberg.

Zinc, used to galvanise steel, was at $2,458 from $2,405, having earlier hit $2,465, its best level since March last year.

Analysts said the rally was technically driven, with fund flows heavily concentrated in zinc because its weighting in commodity indexes has risen due to its strong performance this year.