Copper prices climbed higher on Tuesday, gaining for a fifth straight day on falling inventories, ahead of the return of Chinese traders after a week-long break on Wednesday. Copper for delivery in three months on the London Metal Exchange, often seen as a reliable gauge of real economic activity, rose to $7,890 per tonne, up $125 from Monday.
Stocks of metal in LME-monitored inventories fell by 4,400 tonnes to 159,725, their lowest since last October, and down almost 20 percent since the start of the year. "You can see a strong correlation," said Barbara Lambrecht, analyst at Commerzbank. "For two years now, you've seen that LME stock movements can move prices."
While stocks have fallen, copper prices have risen to their highest since last October, taking gains to more than 15 percent for the year so far. "We are only slightly higher in copper ... despite having one of the sharper drops in copper stocks we have seen in some time," said Edward Meir, analyst with brokerage MF Global.
"It remains to be seen whether copper will regain the head of steam it showed earlier, or whether after five days of straight gains, it will instead head for a much-needed correction," he said.
In the longer term many analysts believe slowing economic activity in the Western world is likely to undermine prices of copper, a key component in house-building and electrical goods. "A US economic slowdown, and a slowdown in the construction industry, should lead to lower prices," Lambrecht said.
In metals news, shares in miner Xstrata fell after a newspaper reported the firm had rejected a $76 billion take-over approach from Brazilian rival Vale, while the market also awaited preliminary full-year results from Rio Tinto on Wednesday.
The chairman of Rio Tinto wrote to shareholders on Sunday, urging them to take no action on a bid for the company by rival miner BHP Billiton. Aluminium fell $35 to 2,655 per tonne and zinc gained $40 to $2,485 per tonne, but gains may be on the cards, according to a technical analyst.
"Zinc is developing a trend breakout pattern. The double bottom near $2,200 provides a technical base with an initial breakout target of $3,000," said Daryl Guppy, CEO of Guppytraders.com. Lead was $20 higher at $3,050 per tonne, nickel was down $50 at $28,100 and tin was up $5 at $17,100/17,110 per tonne.
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