Copper prices rallied nearly 5 percent on Monday as the dollar slipped and inventories fell, but analysts warned prospects were still gloomy. Aluminium prices fell to $1,285 a tonne, their lowest since late 2001 as stocks hit a record high and the troubles blighting the auto industry intensified. A report showing the US government could end up owning as much as 40 percent of the ailing Citigroup helped boost sentiment.
Copper for three-month delivery on the London Metal Exchange rose as high as $3,305 a tonne before closing at $3,231 versus $3,150 a tonne on Friday. "It is engendering a slightly more positive feel to the overall financial environment," Barclays Capital's Kevin Norrish said of Citi, but he warned the overall global economic outlook remained dire. "But (the economic outlook) looks very grim...People's view on the global economy seem to be getting worse by the hour."
The Citi report prompted a fall in the dollar as it encouraged market players to buy back into assets perceived to be higher risk. A weaker US currency makes industrial metals cheaper for holders of other currencies. Stocks of copper in LME warehouses fell 950 tonnes, but stand at 544,650 tonnes, their highest in more than five years. "Things haven't really changed fundamentally in terms of demand being non-existent," Robin Bhar, analyst at Calyon said.
"Stocks - even though they fell this morning - are at a five-year high and are likely to increase further." Low demand has caused copper prices to collapse by about 60 percent since July, when they struck a record $8,940 a tonne. China's imports of refined copper in January fell 14.7 percent from December's all-time record. But imports surged 41 percent from a year earlier.
"Some of the factories in China think that the current price is very low so they are building up their stocks," said Shao Hebin, an analyst at Great Wall Futures. Low prices and slumping demand have forced China's central government to buy metals as reserves, as part of Beijing's plans to support smelters during the current slowdown.
Industry sources said last week China's State Reserve Bureau (SRB) might have already contracted up to 240,000 tonnes of refined copper imports as part of a plan to buy 300,000 tonnes. The picture in aluminium, used in transport, packaging and construction is equally gloomy, analysts said. Three-month aluminium closed at $1,288 a tonne from Friday's $1,305.
Stocks of the energy-intensive metal are at a record high 3.16 million tonnes, up 35 percent since the end of December last year. Zinc closed at $1,098 from Friday's close at $1,105 a tonne. Key stainless steel ingredient nickel ended at $9,550 from Friday's closing bid of $9,495 a tonne. Battery material lead closed at $1,020 from $1,030, and tin fell to $10,405 from $10,525 a tonne.
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