Copper prices hit a three-week high on Wednesday as the demand outlook brightened following upbeat economic data from the United States and as investors eyed bullish inventory data. Benchmark copper on the London Metal Exchange ended at $7,130 a tonne from a close of $7,144 on Tuesday.
The metal, used in power and construction, rallied to $7,240, its highest since January 27, but retreated in afternoon trade as the dollar strengthened, making metals more expensive for holders of other currencies. Sentiment has this week been boosted by US data, which on Wednesday included housing starts and industrial production for January, both of which beat expectations.
"We're looking for more upside in base metals, though there will be volatility," said Dan Smith, analyst at Standard Chartered. "Chinese demand is strong ... the number of construction projects will be a powerful influence." Analysts expect to see Chinese demand start to strengthen next week after the Lunar New Year holidays.
China, the world's largest consumer of industrial metals, has started slowly pulling in the reins on loans and liquidity to stave off price pressures, but analysts say growth will remain strong. Also helping to boost sentiment were cancelled warrants on LME stocks, or material already earmarked for delivery. Copper cancelled warrants rose to 16,900 tonnes, up 500 tonnes from the day before and have more than doubled from 7,425 tonnes at the end of January. Most of them are in Korea, and analyst expect to see this tonnage soon head for China. Stocks of aluminium jumped 22,750 tonnes to above 4.6 million tonnes, hovering just below record highs.
Cancelled aluminium warrants are at 293,175 tonnes, up some 20 percent so far this month from 242,275 at the end of January. That is a small fraction of total inventories, but in the context of financing deals, which have tied up about 70 percent of LME aluminium stocks, the number is significant.
"The risk of an aggressive acceleration in the unwinding of these deals appears to be low," Morgan Stanley said in a note. Aluminium closed at $2,122 a tonne from $2,131 on Tuesday. Earlier it touched $2,155, matching the high on February 3 and zinc hit $2,394, the highest since January 22.
Zinc ended at $2,300 from $2,337. Stocks of zinc jumped 39,900 tonnes, as a previously deferred shipment arrived. Lead closed at $2,290 from $2,298. The battery material earlier hit a one-month high of $2,360 on Tuesday. Tin ended at $16,750 from Tuesday's last bid at $16,700 and nickel at $20,140 from $20,325 having earlier hit $20,589, its second six-month high in two sessions.
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