copper trends

METALS-Copper hits fresh 1-month high on solid Chinese demand
Wed Dec 11, 2013 12:27pm EST

* Copper flips into backwardation, zinc also tight

* Stocks of copper fall in LME, SHFE warehouses

By Silvia Antonioli and Julia Fioretti

LONDON, Dec 11 (Reuters) - Copper rose for a fourth straight session on Wednesday to reach a fresh one-month high on the back of solid demand from top metals consumer China.

Zinc and nickel also touched the highest levels in more than a month, boosted by supplyconcerns.

Benchmark copper on the London Metal Exchange closed 0.85 percent higher at $7,220 a tonne, the highest since Nov. 4, and has gained nearly 4 percent since Dec. 3.

Copper has also broken above its 200-day moving average, a key technical signal for those who examine chart patterns.

"The markets are beginning to wake up to the fact that Chinese demand has been improving," Barclays analyst Gayle Berry said. "It has been improving since the second quarter, and the pace of consumption has continued to pick up."

Copper prices have been buoyed by tight availability of physical metal, due to a shortfall in scrap supply and falling stocks in warehouses monitored by the LME and the Shanghai Futures Exchange.

Strong demand for financing in China also helped. Copper is commonly used as collateral to obtain financing for investment into higher yielding assets.

Worries of a repeat of June's cash crunch as well as strength in the yuan were feeding import demand.

COPPER BACKWARDATION

Tighter supply of metal for prompt delivery was reflected in the flipping of the copper LME futures forward curve from a contango, a discount for cash futures over three-month prices, into a backwardation, or a premium for cash contracts over three-month prices.

A similar scenario has been playing out in zinc, which is also suffering from tight supply and also serves as a popular means of financing in China. The majority of LME zinc stocks are stuck in a backlog in New Orleans.

Cash zinc was at a $1.15 discount against the three-month contract on Wednesday , the smallest discount since July last year and compared with a discount of $30 in mid-November. Three-month zinc climbed 1 percent to finish at $1,966 a tonne the strongest since Nov. 1.

"We believe zinc is on track to move into deficit in 2014, which should also be reflected in prices from 2H14 onwards," metals strategist Michael Widmer at Bank of America Merrill Lynch said in a recent note. "Zinc could hit $2,500/T ($1.13/lb) in the fourth quarter."

Nickel and tin have been supported in recent weeks by controversial plans by top exporter Indonesia to ban the shipment of unprocessed ore. On Wednesday an official said the its president would make the final decision.

Nickel rose 0.7 percent to $14,030 a tonne, the highest since Nov. 6, while tin added 0.9 percent to end at $22,650 and lead gained 1 percent to close at $2,144.

Aluminium failed to trade in closing rings, but was last bid at $1,816.50 a tonne, up 0.7 percent.