Copper jumped more than 7 percent on Tuesday on buying ahead of an annual re-rating by major commodity indices, but the rally was expected to be short-lived as demand concerns remain. The Dow Jones AIG recalculates the weightings for the individual commodities in its index yearly and is set to raise the weighting for copper traded on the New York Mercantile Exchange's COMEX division.
The rebalancing takes place from January 9 to 15. "The index-related buying may go on for another one and a half weeks," said analyst Michael Widmer at BNP Paribas. He said the covering of short positions - bets on lower prices - exacerbated the move higher for many of the metals.
Three-month copper on the London Metal Exchange rose as much as 7.2 percent to $3,420 a tonne, the highest since December 4, before closing at $3,390 a tonne, up $200 since Monday. Copper for March delivery on COMEX is up over 16 percent from its December 26 session trough. Lead and tin were boosted by short-covering, with lead rising to the highest since November 27 at $1,185, up 5.8 percent before ending at $1,178 from Monday's close at $1,120.
Tin rose as high as $12,300 a tonne, up 7 percent from Monday's $11,500, and was last bid at $12,000. Fundamentally the outlook for most metals remained grim and the premiums, indicating demand for physical metal, were flat to lower across the complex relative to December, said Widmer. Mitsubishi Materials Corp said it won a roughly 70 percent hike in copper processing fees from Freeport-McMoran Copper & Gold.
Copper prices fell more than 50 percent in 2008 due to weakening global demand and rising inventories. On Tuesday, stocks in LME warehouses rose 1,450 tonnes to 343,500, the highest level since February 2004. "There is plenty of evidence to suggest that global economic conditions continue to deteriorate," a Barclays Capital report said.
Aluminium hit an intra-day high of $1,612 - the highest since December 4 - before closing at $1,604 a tonne from Monday's $1,548 even as inventories continued to climb. Aluminium stocks rose 11,875 tonnes to 2.35 million tonnes, the highest in over 14 years. Nickel and zinc were lifted by the indices re-weighting.
The reweighting of the S&P GSCI will occur from January 8 to 14 and will be based on closing prices on January 7. Nickel rose as high as $13,555 a tonne, up 5.5 percent from Monday's $12,850 and was last trading at $13,250. Zinc was at $1,319 from $1,300. It earlier hit $1,335 a tonne, the highest price since October 15.
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