Copper rallies

Copper rallied on Friday as hopes for a solution to the eurozone debt crisis and signs of stronger Chinese demand emerged, though some caution prevailed as France and Germany remained at odds over how to bail out Europe's troubled economies. Benchmark copper on the London Metal Exchange surged more than 6 percent to $7,168 a tonne after tumbling nearly 7 percent on Thursday, its largest one-day fall since September 22.
The metal used in power and construction ended at $7,145 a tonne from $6,735 on Thursday when copper hit a two-week low of $6,710. Other industrial metals also gained. Aluminium gained 4 percent to hit a session high of $2,172 a tonne, zinc rose nearly 5 percent to $1,823.75 a tonne, lead was up more than 6 percent to $1,911.75, tin rose more than 4 percent to $22,200 and nickel more than 5 percent to $18,975 a tonne. France's push to use more European Central Bank money to fight the eurozone debt crisis ran into strong resistance from Germany and other EU partners on Friday, leaving Paris increasingly isolated before a crucial weekend summit.
Markets remained hopeful, however, preferring to focus on pledges by German government sources that decisions on bank recapitalisations would be made at a meeting of European Union finance ministers on Saturday. "We've had three years of no hope and you know, a broken clock is right twice a day. This (bailout) could have been done six months ago and it would have been more timely and a lot cheaper," said Calyon analyst Robin Bhar. But he added: "It's still a big bet, 50-50 is the odds, no better no worse. And it's a binary outcome, either it works or it doesn't. I don't think you can settle for middle ground though Europe is famous for doing that."
A communique from French President Nicolas Sarkozy and German Chancellor Angela Merkel, following the European close on Thursday, said the wide-ranging debt reduction plan would now be announced no later than next Wednesday. Traders said many short copper positions - bets on lower prices - taken on Thursday were being squared ahead of the weekend meeting and this explained in part why copper was showing gains.
"Anybody who is long is either crazy or has information that I don't have," a metals trader said. "I'm waiting for the results of the pillow fight between France and Germany." Many funds holding copper on the expectation of supply constraints and deficits in the future are also paring or squaring their positions.
A realisation that copper is still some 40 percent above the production costs of the highest-cost producers is behind these sales, and many funds that have been long since the middle of last year are losing money. "They are selling into the rally, trying to limit losses," another metals source said. "There's a long way to go before anybody even starts talking about idling capacity."
Copper touched $6,635 earlier this month, its lowest since July last year. A plus for the bulls was the volume of copper stocks in LME-approved warehouses. At 447,800 tonnes they are down nearly 6 percent since early October. Traders say much of this metal has gone to China and that there are more deliveries in the pipeline to the world's largest consumer of industrial metals. "Chinese consumers are showing a lot of interest," the metals trader said. "There's a lot more to come."
That interest can be seen in the high level of cancelled warrants - material tagged for delivery - in LME-approved warehouses located in South Korea. About 20,000 tonnes of metal is earmarked to leave warehouses in Busan and Gwangyang. China accounts for about 40 percent of global copper demand, estimated this year at about 20 million tonnes. Weak manufacturing and below-consensus Chinese growth data in recent weeks have weighed on prices of industrial metals. Opinion is divided about copper demand growth in coming weeks and months, with some expecting China to escape relatively unscathed from global financial turbulence.
Negative sentiment is based on the premise that much of the metal consumed in China is actually exported in the form of copper products to the United States and Europe. "Far from being 'ruled out' by the numbers as the most credulous of mainstream macromancers have been claiming, China's hard landing may actually be unfolding," Diapason Commodities' Sean Corrigan said in a note.
China's concern about the fallout from the eurozone is illustrated by Premier Wen Jiabao, who urged Europe to prevent its debt crisis from spreading across the bloc and to stabilise its currency and financial markets. Three-month aluminium ended at $2,125 a tonne from $2,085 on Thursday, zinc at $1,805 a tonne from $1,740 and lead at $1,915 from $1,790. Tin was last bid at $21,670 from $21,200 and nickel ended at $18,800 from $18,025 at Thursday's close.