Copper jumped more than 7 percent on Friday, lifting other base metals with it on hopes that China, the world's biggest user of the red metal, will soon see the start of an economic recovery. Three-month copper on the London Metal Exchange rose as high as $3,580.75 a tonne and ended the day at $3,540 a tonne compared with $3,329 at the close on Thursday.
"I think the Chinese have come back from their New Year celebration with budgets in hand, they're busy spending that," said John Meyer, head of resources at Fairfax investment bank. He said both Chinese buying and the anticipation of buying was helping the market climb. Imports of unwrought copper and semi-finished copper products by China are expected to remain high in January, and imports of copper cathode near December's record level.
China's stock market jumped nearly 4 percent in heavy trade on Friday, posting a weekly gain of almost 10 percent, on the back of hopes for an early recovery of the country's economy. "There is a bit of belief that the Chinese stimulus package will begin to turn things around," Dan Smith, an analyst at Standard Chartered, said. However, he said copper demand was still weak.
Copper prices have risen about 9 percent this week, but some market watchers say the rally may be premature. "We think such optimism is based on shaky foundations and expect prices to remain weak in 2009," Deutsche Bank said in a note. Underlining a deepening recession, US employers slashed 598,000 jobs in January, the deepest cut in payrolls in 34 years and the jobless rate shot up to 7.6 percent, according to a Labour Department report on Friday.
"It looks like China may be past the worst but the rest of world is still deteriorating," Standard Chartered's Smith said. Bank of Japan Governor Masaaki Shirakawa warned of mounting problems for the world's No 2 economy, saying slumping exports and weak share prices were taking a toll on growth and the nation's banking system. The collapse in demand can be seen in growing inventories.
Copper stocks in warehouses monitored by the Shanghai Futures Exchange rose 72 percent from two weeks ago, and aluminium inventories climbed 11 percent. Copper inventories in LME warehouses rose 2,025 tonnes to 504,625, the highest level since November 2003. Higher copper prices lifted all the base metals even as inventory levels continued to grow. Aluminium prices rose to $1,468 a tonne from $1,433.
Aluminium stocks in LME warehouses jumped 8,725 tonnes to a record 2.87 million tonnes. Output cuts by producers have so far failed to offset the fall in demand. On Thursday, Russia's United Company RUSAL, the world's largest aluminium producer, said it will cut 11 percent of its annual aluminium output, while Norway's Norsk Hydro said it may cut production at its Neuss plant in Germany.
Nickel surged to $11,505 from $11,450. LME stocks of the metal rose 1,410 tonnes to 85,452 tonnes, the highest level since July 1995, as demand from stainless steel makers has dropped. Zinc was up at $1,190 from $1,144. Zinc inventories rose 2,050 tonnes to a three-year high of 351,025 tonnes as demand has fallen from the auto and construction sectors. Lead increased to $1,185 from $1,145, while tin rose to $11,200 from $10,850.
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