London copper rose half a percent on Monday, building on a 5 percent rally in the second half of last week as dollar weakness, threats to production and tight Chinese supply won out over concerns about financial market stability. Copper shrugged off the turmoil in financial markets, including Lehman Brothers filing for bankruptcy on Sunday, and instead chose to focus on the greenback.
Which fell as much as 1 percent, extending Friday's sharp losses and reviving investor demand for commodities including gold and grains. London Metal Exchange copper rose 0.5 percent or $38 to $7,160 at 0643 GMT, after adding 2.8 percent on Friday. Copper was rising for a fourth day after hitting a nearly eight-month low of $6,775 a tonne on Wednesday.
Prices earlier touched $7,195, their highest since September 5. "The fundamentals look supportive for current prices, although sentiment is brittle and we could easily test last week's lows," said Yingxi Yu, analyst at Barclay's Capital said. "The key to copper is that inventories in China are very low, although it is also easy to identify downside risks. The big one is pessimism across commodities market."
December copper rallied 2 percent in Shanghai on Friday, anticipating a rise in London during a market holiday and a big decline in weekly inventories, which fell almost 30 percent to 13,554 tonnes, or just over one day of Chinese consumption.
Markets in China, Japan and Hong Kong were closed on Monday and dealers said investors could also be trying to goad Asian players into a short-covering rally when they return. Analysts expect Chinese buying to pick up for the fourth quarter as consumers take advantage of the 30 percent fall in international copper prices since a record high in July to restock depleted reserves.
"Prices have probably come off too far, too fast, the real question is how healthy the post-Olympic demand numbers will be," National Australia Bank's Gerard Burg said. Supply threats continued to underpin prices. The long-running tensions around Freeport McMoRan's Grasberg copper mine flared over the weekend when a bomb exploded near Timika airport in Indonesia's eastern Papua province on Sunday night. The explosion took place at 10:30 pm local time (1330 GMT), about 70 km (45 miles) from Freeport's mining site.
While the blast was too far from operations to have a direct impact, last week, Freeport said it would defer almost 70,000 tonnes of copper output planned for 2009 because of a failure at the open pit. "Grasberg has attracted a lot of protests. If these attacks continue, it could impact production. Taking out a world class copper deposit like that would be felt in prices," Burg said.
But supply threats in aluminium and nickel faded. In aluminium, Texas's alumina industry was restarting after coming through Hurricane Ike relatively unscathed and nickel makers in Cuba were also picking up the pieces after the storm. Oil fell, slipping below $100 a barrel to a six-month low on early signs that Ike may have spared key Gulf Coast infrastructure, although traders were cautious on Monday as they awaited status reports on more Texas refineries.
Lehman Brothers Holdings said it was filing for Chapter 11 bankruptcy protection, shaking faith in the stability of the US financial system and sparking talk of a possible interest rate cut, boosting gold's appeal. Dealers said neither Lehman nor Merrill Lynch, the subject of a take-over by Bank of America, were big players in base metals markets in Asia.