Copper hits two-week high

Copper prices rallied to a more than two-week high on Tuesday, boosted by anticipation of large-scale cheap funding for banks from the European Central Bank, but further gains were capped by uncertainty about the pace of recovery in the US economy. Three month copper on the London Metal Exchange rose 0.6 percent to $8,587.75 a tonne at 1452 GMT, from Monday's $8,536 a tonne close.
Copper earlier hit its highest since February 10 at $8,689, and has climbed around 13 percent so far this year. Banks are expected to snap up another half a trillion euros of cheap three-year loans offered by the ECB in this week's longer-term refinancing operation (LTRO), according to a Reuters poll.
"The liquidity injection is playing a much bigger role in driving metals prices at the moment than the fundamentals," said Gianclaudio Torlizzi, partner at T-Commodity. "The underlying move from central banks such as the ECB, the Bank of England and the Bank of Japan has been from a restrictive policy to an easing policy and that has been bullish for metals."
The euro remained close to a three-month high against the dollar ahead of the ECB's liquidity injection, but retreated slightly after data showed new orders for US manufactured goods fell in January by the most in three years. A strong dollar makes commodities priced in the US unit more expensive for holders of other currencies.
Adding to concerns about the pace of economic recovery, US single-family home prices ended 2011 on a downbeat note as a drop in prices in December sent the seasonally adjusted index to its lowest level since 2003. Some analysts were becoming increasingly wary about how sustainable copper prices are, given less-than-buoyant Chinese demand.
"...copper's rally is getting increasingly hard to justify on fundamental grounds. You have LME stocks of copper falling every day, but stocks in China have risen by more than LME stocks have fallen over the last four months which suggests that demand is not that magnificent by Chinese standards," said Stephen Briggs, analyst at BNP Paribas.
China is the world's biggest consumer of metals, accounting for around 40 percent of refined copper demand last year. Demand from the country has been slow to pick up since its Lunar New Year holidays in late January. Copper stocks in warehouses monitored by the LME fell below 300,000 tonnes for the first time in 2-1/2 years, data showed on Tuesday, while fresh orders, known as cancelled warrants, jumped by 4,700 tonnes mostly in US locations.
There has been a draw on US stocks this year, because Western world premiums, or the price paid on top of metal to take delivery, are relatively cheap due to higher transport costs than from other global locations. The drawdown in LME copper stocks was one factor leading to a tightening in the copper forward spread said a senior trader in London, which although fuelled by short-covering does show some improving confidence about the global copper outlook.
"It's a combination of things. We know of some material being reserved and shipped from the States to China," he said. In other metals, battery material lead was at $2,253 from $2,247 and aluminium was at $2,322.25 from $2,331. Tin rose to $24,000 from $23,705, while zinc was at $2,116.50 from $2,100. Nickel was at $19,950 from $20,175.