Copper climbs

Copper jumped more than 3 percent on Friday as rising equity markets briefly boosted sentiment in metals, but analysts remained cautious as demand worries persisted. Lead prices rallied more than 7 percent after a sharp fall in inventories, while nickel tumbled around 6 percent, before trimming some losses, on expectations of oversupply at a time when demand is seen weakening.
London Metal Exchange copper surged as much as 6.4 percent and closed at $4,806 per tonne, up $146 from Thursday, as bargain hunters lifted US stocks briefly before turning negative and as European equities rallied. But investors and analysts remained cautious about the near-term outlook given continued signals the global economy is heading for a potentially deep recession.
"Sentiment remains fragile," said Sudakshina Unnikrishnan, analyst at Barclays Capital. "The macroeconomic uncertainty and recession fears coupled with volatility in the financial markets means any sort of recovery we see in prices could be viewed as temporary," she said. Fresh US macroeconomic data looked to confirm the doom and gloom.
US consumer confidence suffered its steepest monthly drop on record in October and construction starts on new homes fell to a 17-1/2 year low the previous month. Unnikrishnan said the downside pressure still continued for many of the metals, echoing LME traders who saw copper falling towards $3,600 per tonne.
The shape of the global economy and the turmoil in the financial markets is the main driver of metals markets lately, but still fundamentals such as the level of inventories seem to matter as they provide clues about the consumption levels.
Copper stocks in LME-warehouses stand at 211,450 tonnes, more than double the level of inventories in May this year. But they still only account for around 4 days of global consumption. Copper inventories in warehouses monitored by the Shanghai Futures Exchange rose 35 percent in the week ended Thursday, while aluminium inventories fell 0.4 percent, the exchange said.
"Most of the base metals are clearly in surplus at the moment," said analyst Richard Knights at Numis Securities. Traders were expecting more stocks to hit warehouses if consumption patterns from the automotive and construction industries continued to falter due to the economic downturn.
"You can't borrow money to finance it, so the only option they have is to deliver it back to warehouses - we have seen a considerable amount of that in aluminium," an LME trader said. LME stocks in warehouses have doubled since the start of this year reaching 1.48 million tonnes - enough for more than two weeks of global consumption. Aluminium closed at $2,225 a tonne, up $45, with prices down about 35 percent from the all-time peak reached in July at $3,380.
A sharp fall in LME lead inventories boosted the metal more than 7 percent. Three-months lead closed at $1,460 per tonne versus $1,360 on Thursday. Inventories of lead fell by a hefty 1,650 tonnes, bringing the total amount to 59,425 tonnes, the lowest since May.
Nearly 20 percent of the inventories are on cancelled warrants - material not available to the market as it is earmarked for delivery. Zinc rose $45 to $1,225 a tonne. Nickel fell to $10,750/10,850 versus $10,950 on Thursday, after tumbling 5 percent to $10,400 while tin dropped to $12,900/13,000 versus Thursday's close at $13,400/13,500.