Copper rose almost 2 percent on Thursday, helped by stabilising equity markets while mining shares rose on fresh talk of a big merger, analysts said. Copper futures at the London Metal Exchange, often considered a gauge of the real economy, ended the official session at $7,300 per tonne, up $140 from Wednesday's close, while aluminium firmed $27 to $2,470.
"Equity markets stabilised and the market's probably a little bit sold-out in the short term. What we're seeing is some short-covering," an LME trader said. "We've heard some hedge funds buying in," he said. European shares firmed helped by the absence of rate hike signals from the European Central, with pan-European FTSEurofirst 300 index up 0.17 percent.
Mining shares were among the biggest gainers, with Rio Tinto up as much as 6 percent on renewed talk rival BHP Billiton might bid for it - speculation about which Rio declined to comment.
"At the moment we see prices reacting to any movements in the wider financial markets," analyst Sudakshina Unnikrishnan said at Barclays Capital. Metals in general were knocked in August when investors sold holdings to cover losses sustained in the wake of the collapse of the US subprime mortgage market, but copper has since then partially rebounded. "Sentiment towards the complex remains uncertain with the lack of any definitive fundamental news flow in the seasonally slow demand period, with LME inventory trends and movements in the wider financial markets key determinants of near-term price movements," analysts at Barclays Capital said in a report.
At Thursday's prices, copper is up around 14 percent on the start of the year and aluminium is down by a similar ratio. In broader terms, investors are waiting for the US payrolls report on Friday following data on Wednesday that showed US private employers likely added 38,000 jobs in August, the slowest rate of growth in four years., and beyond that for a meeting of the Federal Reserve on September 18, at which the central bank may cut interest rates.
Investment bank Merrill Lynch upgraded its long-term price forecasts for aluminium, copper, nickel, zinc and lead, arguing that higher production costs would lead to higher sales prices.
Merrill forecast nickel prices would average $12 a pound in 2008 ($26,455 a tonne) and $11 a pound in 2009. Merrill also upgraded its long-term average price forecast out to 2013 to $6.90 a pound from $4.77.
It increased its 2008 outlook for aluminium by 12 percent to $1.18 a pound ($2,601 a tonne) and its 2009 forecast by 21 percent to $1.15. Its 2008 copper forecast was raised by 25 percent to $2.50 a pound ($5,512 a tonne) and by 14 percent in 2009 to $2.00 a pound.
Aluminium stocks in LME-registered warehouses rose on Thursday by 4,925 tonnes to 858,925 tonnes and have climbed 2.3 percent since the end of August. Zinc gained $15 to $2,830 a tonne, lead was up $20 at $2,930 and tin was last at $14,695/14,750 versus 14,625/14,650 while nickel firmed $50 to $27,350.
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