Copper rose more than 2 percent to a four-month high on Thursday as investors cheered news that the US Federal Reserve was ready to offer additional stimulus, a move that could lift economic growth and demand for industrial metals. Federal Reserve Chairman Ben Bernanke said late on Wednesday the US central bank was ready to offer the economy additional stimulus after it announced it would likely keep interest rates near zero until at least late 2014.
Benchmark copper on the London Metal Exchange rose more than 2 percent to a session high of $8,610 a tonne, its highest since September 19. It closed at $8,590 from a last bid of $8,384 on Wednesday. "The Fed's announcement certainly seems to have helped," said Natixis analyst Nic Brown. "If you think the Fed's action will lead to stronger economic growth, then yes, it should boost base metals demand, but if you think that the Fed's action signals more prolonged weakness, then the connection is not that obvious." New orders for US manufactured goods rose in December, and a gauge of future business investment rebounded, while new claims for jobless benefits rose only moderately last week, suggesting the labour market in the world's biggest economy was still healing.
Hopes that Greece will wrap up tortuous negotiations on a debt swap this week to avoid a chaotic default also supported market sentiment. The euro hit a five-week high against a broadly weak dollar on Thursday on speculation of progress in Greek debt negotiations and after the US Federal Reserve indicated interest rates would stay at ultra low levels for at least another two years. A weaker US unit makes dollar-denominated commodities more affordable for holders of other currencies.
Copper stockpiles in LME-monitored warehouses have fallen by almost a third in the past four months, an indication that demand for the metal has improved recently. Inventories of the red metal fell by 1,875 tonnes to 337,875 tonnes in LME-bonded sheds, their lowest level since September 2009, the latest data showed. Copper stocks in warehouses monitored by the Shanghai Futures Exchange, however, increased in the past few weeks, which may indicate some demand weakness in China, the world's largest consumer of the metal.
This weakness is temporary, though, according to some analysts. The Shanghai Futures Exchange is closed this week for the Lunar New Year holiday. "Stocks in Shanghai have gone up recently as imports went up ahead of the Chinese New Year holiday, but demand from end-users in January has been muted, so you get a certain accumulation," Brown said. "That was in anticipation of stronger demand later this year, so I don't think it is hugely worrying. The absolute level of stockpiles around the world is low."
Natixis expects China's apparent demand for copper to grow by 9 to 10 percent this year as a destocking phase comes to an end and apparent demand once again starts to reflect the needs of real end-users. "China has stepped up its metal imports ahead of the Chinese New Year, and the question is whether the latest uptick in imports was just due to stockpiling or whether end-user demand has indeed continued to strengthen," Credit Suisse said in a note.
Chinese imports of refined copper rose 18.3 percent in December on the month to a record high due to improved arbitrage and increased use of copper for financing purposes, but inflows fell 3 percent in 2011 from 2010 on low imports in the first half. In other metals, tin closed at $24,005 from $22,450, zinc closed at $2,205 from $2,175 at Wednesday's close. Lead closed at $2,325 from $2,281 and nickel at $21,600 from $20,940. Aluminium, untraded at the close, was last bid at $2,276 from $2,252.
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