London Metal Exchange copper prices hit their highest since May 16 on Monday with falling inventories and a potential strike in Mexico supporting the market, analysts said.
"A sharp fall in LME stock today ... and a looming strike at nine Mexican mines and plants owned by Grupo Mexico slated to start on June 10th, should steady prices and lend a measure of support to the balance of the group," analyst Edward Meir of Man Financial said.
Copper for delivery in three months ended the day at $7,625 per tonne, up $175 from Friday's close, after gaining 1.1 percent in the previous session. LME copper stocks fell by 3,550 tonnes to 123,900, the lowest since late October 2006 and down by some 40 percent since the beginning of February this year.
Shanghai stocks fell 4 percent to 95,254 tonnes last week. "While global stockpiles are on the decline, the market is nevertheless concerned that demand in China would not be sufficient to absorb supply," analyst Peter Fertig at Dresdner Kleinwort said in a report.
Even if recent US economic data pointed to a pick-up in the country's GDP growth, it seemed insufficient to calm fears of slower demand from China, Fertig said.
Last week copper gained some 4 percent on stronger physical buying and on concerns about the possible impact of strike action. But on Saturday workers at Chile's Radomiro Tomic copper mine voted to accept an early contract offer from state miner Codelco. The division as a whole produces some 940,000 tonnes of copper a year. But traders said other potential strikes supported prices.
In Mexico, workers threatened to strike at nine mines and processing plants owned by Grupo Mexico, including its giant Cananea copper mine. "The relations between Grupo Mexico and its unions don't seem to run very smoothly, so people will watch it with a nervous feeling," Norrish said.
"Clearly if there were (production disruptions) then that would have a big impact on the market," he said. Three-months aluminium met resistance at $2,825, a Triland report said, pointing to June options expiring on Wednesday as an upside barrier. The contract ended the day at that resistance level, versus Friday's $2,795.
"We could see the price move higher but there is a lot of selling at $2,830 and after Wednesday I am sure prices will drop," an LME floor trader said. Another trader said there were some 13,000 large call strikes at $2,900 unlikely to be hit. "But watch copper - if it attempts to push higher aluminium may follow," he said. Lead was down $1 at $2,370.
On Friday lead hit $2,395, its fifth high in as many days on concerns about delays in shipments from Canada-based Ivernia's Magellan mine from the Australian port of Esperance. Concerns about lead pollution in Esperance after 4,000 birds died prompted a halt in March to lead shipments. Nickel was up $400 at $47,800, tin fell $25 to $13,975/14,000 and zinc was up $80 to $3,840.