Copper prices rose on Monday as expectations of stronger demand in top consumer China and falling inventories reinforced positive sentiment, but a firmer dollar limited gains. Benchmark copper on the London Metal Exchange (LME) ended up 0.5 percent to $5,065 a tonne. Chinese imports of refined copper jumped more than 50 percent year-on-year to 328,604 tonnes in February. Analysts expect higher numbers over the next few months due to seasonal strength.
"Financial investors misinterpreted the outlook for Chinese demand, which is not as bad as they thought. Sentiment has improved," said Peter Fertig, a consultant at Quantitative Commodity Research. "More modest increases in US rates are already priced in, the dollar is unlikely to provide much more support." US Federal Reserve policymakers last week said it would be appropriate to raise rates by half a percentage point this year. Previously, expectations had been for a rise of 1 percentage point.
A stronger US currency, meanwhile, makes dollar-denominated commodities more expensive for holders of other currencies. "I would expect prices to consolidate ahead of month- and quarter-end," said VTB analyst Wiktor Bielski. "Stocks continue to move in size from LME to SHFE, arbitrage still supportive, this is a normal seasonal pattern as Chinese stocks typically peak in March ahead of stronger demand in the second and third quarter."
The "arbitrage" refers to the price differential between copper traded on the London Metal Exchange and on the Shanghai Futures Exchange (ShFE). Lower copper prices on the LME have prompted stocks to be moved from LME-approved warehouses to those monitored by ShFE. LME copper stocks, at above 155,000 tonnes, have fallen more than 35 percent since late January.
In the very near term, the prospect of tight supplies due to two large holdings of cash contracts has pushed the premium for cash material over three-month futures to above $30 a tonne, the highest since August. Three-month aluminium ended down 0.6 percent at $1,512 a tonne, and zinc rose 1.7 percent to $1,875 from an earlier five-month high of $1,877.50. Zinc has gained nearly 30 percent since the middle of January on expectations of tight supplies. Lead was bid up 1.1 percent at $1,828 a tonne, tin was unchanged at $16,900 and nickel gained 1.2 percent to $8,765.
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