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Copper rallies, on track for 10 pct Q1 advance
London copper climbed on Friday, tracking strength in equity markets, and prices were headed for a more than 10 percent quarterly gain, although an early advance this year has been pinned back by sluggish demand growth in top consumer China.
Copper prices logged a strong start to the week, rallying more than 2 percent on Monday in line with stock markets, on the prospect of protracted easy monetary policy in the United States.
The rally, however, ran out of steam as profits are booked ahead of quarter-end and ahead of economic indicators that may shed fresh light on the health of China’s manufacturing sector.
“This week copper has been highly correlated with equity markets, so even if prices can rebound on China’s official PMI data, I think it will be capped, maybe around $8,600 per tonne,” said Bonnie Liu, a Macquarie analyst in Shanghai.
“The seasonal recovery is definitely on the way, but the strength of the recovery is still in question and sending mixed messages to the market.”
Three-month copper on the London Metal Exchange climbed 0.9 percent to $8,422 per tonne by 0713 GMT having traded flat in the previous session, and was set to close almost unchanged on the week. A trader said gains on Friday were fuelled by short-covering from macro funds.
Copper is on target to notch up gains of more than 10 percent for the first quarter, but has so far failed to find traction above $8,700 per tonne and remains more than 17 percent below a record high of $10,190 hit in the first quarter of last year.
The most-traded June copper contract on the Shanghai Futures Exchange climbed 0.6 percent to 60,100 yuan ($9,500) a tonne.
Asian shares firmed to end their best first quarter in over 20 years on Friday, while European shares also gained, returning to a new year rally ahead of a meeting that may boost the euro zone’s bailout resources.
A weaker dollar was also providing support. The dollar hit a one-month low against a basket of currencies on Friday, dragged down by heavy selling against sterling and extending losses from earlier in the week following dovish comments on U.S. monetary policy and softer economic data.
Signs of slowing growth in China, the worlds’ top consumer of base metals, emerged mid-month with an early manufacturing sector indicator, HSBC flash PMI, which showed factory activity shrank for the fifth straight month.
China accounted for about 40 percent of refined copper demand last year. China’s official manufacturing PMI, and the final reading for March are due on Sunday.
China’s official PMI, which previews the country’s giant factory sector before official industrial production data, may have dipped to 50.8 in March from a four-month high of 51.0 in February.
“Expectations for more weakness ahead is weighing on sentiment. Hence, the release of the Chinese PMI over the weekend will be a key event risk for near-term direction. If the index remains above 50, we could see some stabilisation in sentiment,” Credit Suisse said in a research note.
Chinese markets will be closed from Monday April 2- Wednesday April 4.
SUPPORTIVE STANCE
Expectations of an extended period of easy monetary policy in the United States also underpinned copper this week.
The Federal Reserve’s current policy of ultra-low interest rates is adequate given moderate U.S. economic growth and manageable inflation, Richmond Fed President Jeffrey Lacker said on Thursday.
Elsewhere in metals, Doe Run declared a force majeure on lead output from the United States’ sole primary producer in Herculaneum, Missouri, following a fire last week that will stop production for up to six weeks.
“This outage is probably not enough on its own to become bullish, especially with the likely restart of Peru’s 120,000tpa La Oroya plant plus the possibility that Doe Run could sell lead concentrates to other smelters,” said Macquarie in a note.
“However, this outage may drive a rise in spot lead premiums in the USA.”
LME tin prices rallied 3.5 percent to a high of $23,500 a tonne as prices pushed through the 200-day moving average (DMA) around $22,986, triggering chart-based buys
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