Copper rose on Wednesday, notching another multi-week peak after signs that China's economic recovery was on track, but some analysts were wary due to scant evidence that underlying metals demand was improving. Three-month copper on the London Metal Exchange touched an intra-day high of $8,074.75 a tonne, the fifth straight day of gains and the strongest in nearly seven weeks, before paring gains. It closed at $8,050 a tonne from a close of $8,030 at the close on Tuesday.
Copper, which has gained 7 percent since touching a low of $7,506 on November 9, got a shot in the arm after Communist Party chief Xi Jinping was quoted as saying China would fine-tune economic policies next year to ensure stable economic growth. Analyst Gayle Berry at Barclays in London said most of the recent gains in metals have been driven by short-covering, but the move has not been backed up by improved metals demand in China, the world's biggest raw materials consumer. "I suspect that what we're seeing in prices now may be difficult to sustain given that it seems to be more a function of positioning rather than any measurable improvement in the fundamentals," she said.
"Unless we get more upside surprises in the economic data, I think the risk is to the downside for prices of all of the metals. The euro zone's economic downturn appeared to ease slightly in November and the pace of growth in the US service sector increased, suggesting some lifting of the chill that has gripped the global economy.
A solution to the US "fiscal cliff" talks could result in another bout of short-covering, but again price gains would be difficult to sustain without signs of higher underlying metals demand in China, Berry added. There were no signs of an early conclusion to the US negotiations to avert automatic spending cuts and tax hikes in January after President Barack Obama held his ground to insist on higher tax rates on the wealthy.
Economic news from the euro zone on Thursday gave little grounds for much optimism. Business surveys showed that the region's slump was a little less pronounced in November than previously thought, but there were few signs it would emerge from recession any time soon. Berry said metals with the weakest fundamentals were most at danger in any sell-off.
"I would highlight metals like aluminium and to a certain extent zinc, where prices have risen the most as a result of short-covering and have the potential to fall back the furthest due to the weakness in their fundamentals." Both aluminium and zinc gained around 8 percent during the two weeks up to Monday, outperforming copper's gain of 4.5 percent.
Both metals have persistent surpluses and high inventories. LME aluminium stocks have recently touched fresh record highs of around 5.2 million tonnes. "Not only is the complex saddled with a mountain of inventories, now around 20 percent of world production, but Chinese output shows little sign of moderating and is running well ahead of domestic demand," analyst Edward Meir at INTL FCStone in a note. LME benchmark aluminium closed at $2,105 per tonne from $2,094 on Wednesday. Zinc closed at $2,027 a tonne from $2,202.5. LME lead closed at $2,239 per tonne from $2,231.5, nickel at $17,550 from $17,505 and tin at $21,745 from $21,825.
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