Copper jumped to the highest in six weeks on Thursday as bearish investors scrambled to buy futures to close out their positions after Chinese trading resumed following a holiday break. The rest of the LME complex also had a firm undertone thanks to the resumption of physical buying in China, combined with firmer oil prices and decent economic data, analysts said.
The gains were curbed, however, as stronger than expected data on US durable goods orders in January lifted the US currency, making metals priced in the dollar more expensive to buyers using other currencies. Three-month copper on the London Metal Exchange reached a session peak of $5,944 a tonne, the highest since January 13, but pared gains later. Copper, which failed to trade in closing open outcry activity, was last bid at $5,888, up 2.2 percent, after ending slightly weaker in the previous session.
"I think the real reason we're getting this renewed burst of short-covering is that Chinese traders have returned from the new year holiday," said Guy Wolf, global head of market analytics at Marex Spectron. "There's still a big short base out there. It's not as big as it was at the beginning of February, but it's still sizeable." Marex Spectron's Copper Sentiment Index, which is derived from an algorithm using data from three exchanges, showed a recovery this week to minus 82.4, against a low of minus 95.7 in late January, the same level as in 2008.
"Overall the macro situation is okay. It's not amazing, but it's fine. This is not 2008," Wolf added. Traders said there were initial signs of an uptick of copper consumption in China, the world's top user of the metal, ahead of the second quarter, typically the strongest demand period. Bonded copper premiums were up $2.50 to $90-$95. "China should be roaring back to life. The price is cheap and they have a big grid build-out coming up," said Daniel Morgan of UBS in Sydney.
The state power sector is a major copper buyer in China, which accounts for 45 percent of global copper demand. Highlighting prospects of tighter than expected supply, a drought in Chile is hampering copper production. LME aluminium closed up 0.6 percent at $1,805 a tonne, zinc rose 0.6 percent to $2,071 and lead finished 0.6 percent firmer at $1,760. Nickel dipped 0.1 percent to close at $14,380 a tonne while tin also fell 0.1 percent to end at $18,100.
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