London copper rose a percent on Monday and Shanghai bounced off an early low on hope that strong Chinese demand could cut stocks, but concerns remain the central bank could act again to cool inflation pressures in the economy. China is scheduled to release industrial output and detailed trade data on Thursday that is expected to show the economy gathered strength in December.
But the market is also prepped for a report on December consumer prices this week that is expected to show the sharpest gain in the index since February 2008, and which may prompt a new response from China's central bank.
China's central bank announced a surprise hike in bank cash reserve ratios last week, a move that reduces the amount of money available for lending, as part of an effort to tame inflation. But many copper traders say the impact has been muted. "If we see more moves tightening liquidity, then the market will take it as a clear signal that prices would fall," said a Shanghai-based trader.
"On the other hand, if China's economic data on Thursday turns out better than expected, it may spur another rally in metals." Traders also say the level of copper stocks has inspired caution. London's copper stocks rose by 1,500 tonnes on Friday to 525,475 tonnes, the highest since early March in 2009 and more than double the level in July.
"The high stocks in both markets certainly weigh on prices, but just when the market would seriously retreat under their weight is unknown, given that the bulls are in total control these days," said Lin Yuhui, deputy general manager of Jinhui Futures. Shanghai's benchmark third-month copper futures contract ended up 0.6 percent at 60,880 yuan a tonne.
Three-month copper on the London Metal Exchange gained $75 to $7,505 a tonne by 0701 GMT, reversing a 0.4-percent decline last week. "Chinese are buying, there's plenty of money around. In addition, investors are optimistic about demand in 2010," said a second Shanghai-based trader, adding that a reweighting of funds in the US last week means the downside risk has waned.
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