Copper hit a three-week high on Thursday, extending a recent rally as market players bet on robust demand in coming weeks from China, the world's top industrial metals consumer. Benchmark copper for three-months delivery on the London Metal Exchange was last quoted at $7,260/7,265 a tonne from a close of $7,130 on Wednesday.
The metal used in power and construction reached $7,336, its highest since January 27. Chinese markets closed this week for Lunar New Year holidays. But the metal's gains of more than 7 percent this week in Europe suggest the Chinese could return as buyers, especially as China's economic growth is expected to stay strong this year. "Demand is looking good. Everyone's bullish in the long-run," said VTB Capital analyst Andrey Kryuchenkov.
"Demand will be good in the second quarter, when the Chinese come back to the market," he said, adding Chinese demand traditionally strengthens in weeks after the New Year holidays. Copper bounced from a day's low of $7,045.25, initially lifted by the dollar's fall against a basket of currencies after bearish US data. But the dollar later rebounded.
A weaker dollar makes dollar-priced metals cheaper for non-US investors. The data included a surge in weekly US jobless claims and a faster-than-expected rise in US January producer prices. As higher producer prices stoke concerns about inflation, some analysts said this could boost the dollar by raising the prospects of higher interest rates.
"It is showing inflationary tendencies," Robin Bhar, an analyst at Credit Agricole, said of the producer prices data. "The Fed would want to raise rates eventually." Tempering upbeat sentiment, LME copper stocks rose 5,175 tonnes to 555,075, the highest since October 2003. Cancelled warrants - material earmarked for delivery out of warehouses - fell to 15,250 tonnes from 16,900 the previous day.
Prices of copper and other metals have been gaining traction in recent weeks thanks to the rise in cancelled warrants, which participants believe indicates a pick up in real demand outside China. In other metals, aluminium, used in transport and packaging, closed at $2,114 a tonne from $2,122.
LME aluminium stocks fell 3,900 tonnes to total 4.6 million tonnes - near record levels, while cancelled warrants fell to 289,425 tonnes from 293,175 tonnes. However, cancelled warrants remain near their highest ever levels, indicating demand is increasing. Zinc traded at $2,310 a tonne from $2,300, while battery material lead traded at $2,319 from $2,290.
Zinc stocks fell 75 tonnes to 541,300 tonnes but the fall did little to combat the previous day's rise of nearly 40,000 tonnes, which traders believe was sparked in part by tightness around the May prompt date. Tin traded at $17,050 a tonne from $16,750, and nickel closed at $20,450 from $20,140. The metal used for galvanising steel earlier hit $20,600, marking a six-month high for a third consecutive day.
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