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03 December 2023

Fund buying and rising inventories lift copper

By Reuters

Copper rose yesterday, reversing earlier losses, as fund buying helped offset worries over rising inventories and further monetary tightening in China.

Price gains were capped by investor caution ahead of the Lunar New Year holiday, which starts on February 14, and will keep Chinese markets shut for a week. Many of China's factories also close and demand for the metal used in construction and power normally drops.

Benchmark copper for three-month delivery on the London Metal Exchange traded at $6,870 a tonne in rings from $6,791 at the close on Monday and compared with a session low at $6,727.

London copper hit a two-and-a-half month low at $6,600 on Monday, before turning around later in the session, after data showed US manufacturing grew in January.

"Funds have been strong buyers this morning," said David Thurtell, an analyst at Citigroup. "The ISM data appears to have restored some calm to the bulls who were unsettled by the sell-off of the past few weeks."

Concerns about China tightening monetary policy remain after strong purchasing managers data on Monday, and as Australia surprised many by holding interest rates steady on Tuesday.

Copper fell 8.5 per cent last month, in part due to increasing worries about rising LME inventories, which indicate that demand outside China, the world's largest metals consumer, remains weak.

The latest data showed copper stocks fell 2,375 tonnes to 541,150 tonnes but remain close to a more than six-year high. "Inventories are still very high – copper close to six-year highs – and this is dragging on sentiment," said Eugen Weinberg, an analyst at Commerzbank.

"Going forward in two weeks, the Chinese go into the New Year and they will close all factories, so manufacturing will drop strongly," he added. "People are afraid of this, so are not taking positions or buying stocks before the New Year."

Aluminium traded at $2,098 in LME rings from $2,085. Inventories in the metal, used in transport and packaging, slipped 3,125 tonnes but are still at near record levels above 4.6 million tonnes.

A large portion of those stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets. Steel making ingredient nickel was untraded in LME rings but last bid at $18,125 from $18,000, while zinc traded at $2,163 a tonne from $2,145.

Anglo-Swiss miner Xstrata reached a tentative deal with unionised workers at its Canadian nickel mining operations in Sudbury, Ontario, on Monday, averting a strike that would have all but shut down base metals production in the region.


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