US copper futures rose nearly two percent in early business on Thursday, with restored confidence in global equity markets attracting money back into commodities following last week's credit-led sell-off, traders said.
"Just a short-covering rally here," said John Hanemann Sr. with Hanemann Trading in New York. "We're just watching the equity markets." Most-active December copper was up 5.35 cents, or nearly 1.7 percent, to $3.2760 a lb by 10:17 am EDT (1417 GMT) on the New York Mercantile Exchange's COMEX division, moving from an overnight low of $3.24 and trading as high as $3.3060. Hanemann pegged short-term support in December copper at $3.20, with resistance seen at $3.30.
By 9:00 am, futures volumes were estimated at 4,213 lots. Recently, investors have been moving funds back into "riskier" assets like equities and commodities amid growing confidence the recent credit turmoil sparked by problems in the US subprime mortgage market may be easing.
The renewed confidence in equity markets has prompted some red metal bargain hunters to step in from the sidelines and buy following the sharp losses last week that saw the benchmark December contract slide more than 11 percent. But, analysts pointed to the fact that the base metals complex would likely remain hostage to equities and cautioned chasing prices higher.
"Needless to say the rebounds are likely to be fragile and it would probably not take much to knock confidence out of the market again," said William Adams, analyst with BaseMetals.com.
Fundamentals remained firm, with stronger Chinese imports in July and expectations the country's demand for industrial metals will remain strong heading into the fourth quarter of this year bolstered bullish sentiment.
China imported 98,489 tonnes of copper in July, up 68.8 percent compared with year ago levels. Imports in the first seven months of the year were just short of 1 million tonnes, up by over 120 percent from 2006. Imports could see a sharp uptick in the fourth quarter as the price discount between Shanghai and the London Metal Exchange (LME) narrows and market conditions get tighter, analysts said.
"It is noticeable that the discount between Shanghai and LME prices has narrowed for the first time since April, which suggests that the situation in Shanghai is looking firmer and the stocks have been absorbed," Sempra Metals economist analyst John Kemp said.
Meanwhile, a three-week old strike at Grupo Mexico's Cananea copper mine continued, with the company advising customers to be prepared in case it was unable to deliver against contracts, but it had yet to declare force majeure.