Copper hit a one-week high on Tuesday, powered by signs of tighter supply and as investors betting on rising US inflation and a further depreciation of the yuan bought the metal as a hedge. World stocks climbed as investors stuck to the view that US President-elect Donald Trump's spending policies will spur growth and inflation, while oil prices hit their highest this month before retreating.
China's yuan firmed against the dollar but still hovered near 8-1/2-year lows, as the outlook for the greenback remained bullish after a relentless rally in the wake of Trump's election win. That outlook got a further boost after data showing a surge in US existing home sales last month cemented bets on multiple rate hikes going forward.
"Supply seems to be tighter than expected, and the Chinese are buying up copper as a hedge against yuan depreciation. (But) supply forecasts still point to strong growth next year, so one would expect prices to come back," said SP Angel analyst Sergey Raevskiy. London Metal Exchange copper ended up 1 percent at $5,613 a tonne after hitting a one-week high of $5,687 earlier. Traders noted fresh buying by momentum-based funds.
Shanghai Futures Exchange (ShFE) copper rallied 3.8 percent while other ShFE metals gained 3 to 6 percent as investors hunted for yield. In a bid to temper the rally, ShFE said it would raise margins and trading limits on futures contracts including copper, aluminium, zinc, lead, nickel and tin.
But indications of tighter supply in the form of falling copper treatment and refining charges plus bets on continued stimulus in top copper consumer China continued to boost the metal. "Most Chinese players we spoke to (are) expecting good demand for next year of 3 to 5 percent on sustained government stimulus policies and continued signal strength from both customers and national data," Macquarie Bank said, referring to meetings during last week's Cesco copper conference.
"All end-use sectors are believed to be strong ..." Nickel ended down 0.3 percent at $11,370 a tonne. Indonesia will cut the royalty charged on sales of processed and refined nickel to 2 percent from 4 percent, a mining ministry official said. Aluminium ended up 2.2 percent at $1,760 a tonne. Indicating tighter supply, LME data showed one entity holds 50 to 80 percent of tomorrow and next day contracts, and 40 to 50 percent of warrants or ownership titles. Lead ended up 0.9 percent at $2,192, zinc closed up 0.8 percent at $2,602 while tin ended up 1 percent at $21,050.
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