US copper futures charged to a three-month high at the open on Thursday, fuelled by chart-based buying after prices penetrated key resistance at $2.90 a lb, traders said.
"This was a significant support, and when we took that out, there were a lot of stops up there that were set off," said Larry Young, senior trader at Infinity Brokerage Services in Chicago. He added that the core of long positions were already built into the market from the February lows and investors added to those positions on the upside break Thursday morning.
Copper for May delivery rallied 13.40 cents or 4.7 percent to $2.96 a lb by 10:40 am EDT (1440 GMT) on the New York Mercantile Exchange's COMEX division, just shy of its morning peak at $2.9640, its priciest level since December 21, 2006. Business was heavy in the morning hours, with estimated futures volumes at 3,000 lots by 10:00 am.
Renewed commercial interest was seen coming back into the market, indicated by a narrowing of the spreads and an eventual reversal from the market's contango structure to a backwardation, analysts said. This structure, where the nearby contracts are more expensive than distant delivery months, suggests tightening market conditions and speculation of stronger demand growth, analysts said. By 10:41 am, the May/July spread widened out to a 1.10 cent premium from 1.00 cent by Wednesday's settlement.
This renewed commercial interest was mostly seen coming from China, the world's largest copper consumer, on the heels of constructive macro and trade data, analysts said. China's industrial output for January and February grew 18.5 percent from a year earlier, the National Bureau of Statistics said on Thursday. Contracted imports were seen covering the country's needs until late May, despite a fall in domestic production, although the market could tighten up again in June.
This fall in domestic copper production was seen keeping China heavily reliant on copper imports going ahead. China imported 174,093 tonnes of refined and anode copper and copper alloy in February, preliminary customs data showed. Imports for the first two months hit 321,743 tonnes, up 112.9 percent year-on-year.
On the economic front, manufacturing activity in New York State factories plunged to its lowest level in nearly two years in March, dragged down by a sharp fall in new orders. And higher energy costs helped lift producer prices by a bigger-than-expected 1.3 percent in February, a Labour Department report showed. London Metal Exchange (LME) stocks data was also seen supportive to the rally on Thursday.
LME copper warehouse inventories fell by 1,625 tonnes to 196,125 tonnes on Thursday, down from a three-year peak above 216,000 tonnes in late January. COMEX stocks were unchanged at 36,435 short tons on Wednesday.