copper higher despite pullback in equities

COPPER resisted the bearish impact of a firm dollar and weaker equities to climb back towards five-month highs on a jump in cancelled warrants.

The increase in cancelled warrants - material tagged for future delivery - suggested more metal will make its way to China in the coming months.

“The surge in cancellation of copper warrants kind of shocked the market,” said Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto.

Copper for May delivery on the New York Mercantile Exchange's COMEX division rose US3.10 cents to close at $US1.99 a pound, after dealing in a session range between $US1.9365 and $US2.0120.

On Monday, the benchmark contract rallied to $US2.0370, its highest level since October 29.

Three-month copper on the London Metal Exchange ended at $US4379 in the official rings from Monday’s close of $US4270.

The metal used in power and construction on Monday snapped a five-day winning streak that had lifted prices to a five-month high of $US4459 a tonne.

Sentiment received a boost after inventory data showed stocks of copper at LME warehouses drop 2925 tonnes to 501,900 tonnes.

But the big news was in the sharp increase in cancelled warrants. Cancellations of warrants jumped to 60,850 tonnes, and are now up by 140 per cent from a level of 25,475 tonnes one week ago.

The rise in cancelled warrants took place largely in Europe, whereas earlier this year a jump in cancelled warrants predominantly took place in Asian warehouses.

Analysts said this material was likely heading for China due to stockpiling and because of tightness in the scrap metal market in the world's top copper consumer.

“It seems unlikely that this is material destined for European markets. European demand is still flat on its back and it's more likely to be material that's heading for Asia, China in particular,” said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.

“They're having to go further afield for supplies,” he said.

Copper's upside was capped as the dollar gained ground from a drop in global equities ahead of the start of what is expected to be a dismal corporate earnings season.

Aluminium, used in transport and packaging, ended at $US1475 a tonne from $US1465.

Hurting the demand outlook, aluminium inventories climbed by 36,925 tonnes to a record above 3.5 million tonnes.

Zinc ended at $US1355 a tonne from $US1360, while battery material lead touched a two-week high at $US1359 before closing at $US1334 in LME rings from $US1325.