copper ends higher

Friday 13.1.12 AAP (nine news)

Copper shot to a more than two-month high above $US8,000 per tonne on Thursday after a drop in China's inflation and two successful European debt auctions emboldened market bulls and unleashed a wave of pent-up short-covering.

Copper saw heavy volume as it extended gains into a third day spurred by the prospect of easier monetary policy in top-consumer China and healthier demand views for the broader industrial metals, dealers said.

Copper's 2.8-per cent surge made it the biggest gainer in the Thomson Reuters-Jefferies CRB index, an impressive move for the metal on a day when the overall index was down. Its advance led other base metals, boosting nickel to a two-and-a-half-month high, aluminium to a near two-month top, tin to its highest in one-and-a-half months, and zinc to a one-month peak.

London Metal Exchange (LME) benchmark copper peaked at $US8,074.50 a tonne, its priciest level since October 31, before ending the day with a $US220 gain at $US8,005.

In New York, the key March COMEX contract rallied 10.30 US cents or by 2.9 per cent to settle at $US3.6490 per lb, near the top end of its $US3.5220 to $US3.6710 session range.

COMEX copper's open interest is up nearly 13 per cent from early December, front-running the rally in the futures price.

Volumes surged above 68,000 lots in late New York business, nearly two-thirds above the 30-day norm, according to preliminary Thomson Reuters data.

The day began with Chinese data showing the metal-consuming giant's annual inflation fell to 4.1 per cent in December, the lowest in 15 months.

Better-than-expected results from Spanish and Italian debt auctions, as well as upbeat comments from European Central Bank (ECB) President Mario Draghi, assuring markets that the ECB was ready to act if needed, added to the bullish tone in metals and other risk assets like the euro and crude oil.

"Previously, there was a very bearish economic view being priced in so even a small improvement is having a very positive effect on prices, especially given the market was generally positioned on the short side," said Gayle Berry, analyst at Barclays Capital.

"But we're not out of the woods yet. Over the next couple of months, the markets are going to remain very sensitive to the big picture and I don't think this is the beginning of a straight line higher."

Last year copper posted its first annual decline since 2008, losing a quarter of its value as the euro zone debt crisis and growth uncertainty soured the demand outlook for industrial metals.

The metal is traded predominantly on the London Metal Exchange, whose board received several serious potential bidders last year and will consider takeover proposals at a meeting in late February.

The drop in China's annual inflation set the tone for the day, signaling that if easier monetary policy seeps into end-user markets, it could help support prices for copper as buyers will have more liquidity.

An easing in Chinese inflation may help spur some domestic buying after the Lunar New Year break, as the government is now expected to focus less on putting a brake on prices and more on stimulus measures, traders said.

"People are betting that with lower rates in China, that economy will improve at some point, and maybe we will see more cash-carry deals in copper," said Bart Melek, head commodity strategist with TD Bank Financial Group.

"The curve might be conducive now, locally, to get people back into those positions, or certainly not force them to roll out of them."

Looking at inventories, data showed copper stocks in LME-registered warehouses fell by 6,000 tonnes, with 4,775 tonnes delivered out of warehouses in Busan, South Korea. Total cancelled warrants for copper stood at 13.74 per cent.

"Inventory levels at the London Metal Exchange are falling and suggest robust consumption," Credit Suisse said in a note.

"Moreover, cancelled warrants, i.e. inventories already earmarked for delivery are rising as well, which suggests that further outflows might be ahead. We take this as a positive sign."

Looks good for emerging copper producers - cheers to all long termers- Bris1