Copper posted its first weekly gain in five weeks on Friday as it pushed near $8,000 per tonne on the back of persistent inventory tightness and a move this week by central banks to boost liquidity.
With the exception of tin futures, which lost nearly 4 percent this week, investment demand for the base metals was up sharply. One standout performer was aluminium, which surged nearly 7 percent after a brief dip on Monday below $2,000 per tonne, its lowest since July 2010.
Copper rallied nearly 10 percent this week, outperforming safer havens like gold and climbing back near its late-October peaks. The move followed a central bank decision to inject liquidity into a distressed banking system, which boosted investor confidence and prices of assets such as base metals.
Positive labor market data from the United States and signs China’s monetary policy has shifted into an easing mode provided additional upside momentum to the rally. But some market players worried the advance may run out of steam, sooner, rather than later.
“I think that this rally is purely led by short-covering. It doesn’t necessarily ease credit significantly for end-users, it doesn’t speak volumes about improvement in demand … it just washed out a bunch of shorts,” said Nic Johnson, who helps manage about $30 billion in commodities at Pacific Investment Management Co. in Newport Beach, California.
London Metal Exchange (LME) benchmark three-month copper CMCU3 rose $105 to close at $7,895 per tonne, after hitting an intraday high of $7,988.
Trading on the LME was halted for more than an hour on Friday due to a technical fault, with ring, telephone and electronic trading on the select platform affected. A spokesman said the LME was investigating the cause.
In New York, the key March COMEX contract climbed 5.05 cents or 1.4 percent, to settle at $3.5845 per lb, after dealing from $3.5275 to $3.6335.
But thinner-than-normal futures volumes indicated the rally may not last. Nearly 39,000 lots traded in late New York business, down more than 35 percent from the 30-day norm, according to Thomson Reuters preliminary data.
Copper’s rise was aided by data showing the U.S. jobless rate dropped to a 2-1/2 year low and that companies stepped up hiring, to provide further evidence the economic recovery was gathering momentum.
Investors are hoping that more convincing measures to tackle the euro zone crisis and prevent the economic environment from deteriorating further will be agreed at the next European Union summit on Dec. 9.
The new head of the European Central Bank signaled on Thursday that it stood ready to act more aggressively to fight Europe’s debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation euro zone.
Manufacturing data from the United States, China and Europe this week sent mixed signals about the health of the economy.
While November manufacturing data from the United States rebounded to its highest since June on the strength of new orders, manufacturing activity contracted in top metals buyer China and the euro zone.
Physical copper demand was reasonable as a drawdown of inventories in bounded Asian warehouses showed, but until there is a significant economic improvement consumers are likely to keep their inventories low, analysts said.
“We see some early signs of weakness in physical demand, but it has not been enough to build inventories in any meaningful way,” PIMCO’s Johnson said.
Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 11.6 percent on the week. and were also slightly down in LME-monitored warehouses, compared with last Friday.
“For base metals to continue to rebound we need to see more positive data from China,” Graber said. “There is still some consumption of metals but in the current uncertain environment nobody expects a buying spring anytime soon.”
© Thomson Reuters