Copper rose 3 percent to a one-week high on Wednesday, boosted by reports of Chinese buying and as data from China and the United States raised hopes the pace of the global economic downturn may be slowing. China has started buying copper from domestic bonded warehouses and overseas markets as a move to gradually triple its state reserves to about 1 million tonnes, trade sources familiar with the situation said.
A rise in China's official manufacturing index and a surge in bank lending led to optimism the world's third-largest economy may soon be on the road to recovery. US employment figures that were not quite as bad as forecast were also supportive. "There has been some reasonably positive macro data and more speculation on SRB (China's State Reserves Bureau) buying...it doesn't take much to move the markets to the upside," Gayle Berry, an analyst at Barclays Capital, said.
Three-month copper on the London Metal Exchange closed at $3,415 a tonne in rings, compared with $3,370 at the close on Tuesday. It earlier rose to $3,472 - the highest since January 27. However, copper inventories on the LME continued to climb, up 4,650 tonnes to 499,950, the highest since November 2003.
"Most negative economic news is already accounted for and unlikely to surprise, but constantly rising LME inventories continue to fuel demand concerns," Russian bank VTB said in a note. "There could be more volatility after the period of initial consolidation in the past week, especially given the key interest rates decisions in the UK and Eurozone."
Funds covering short positions - bets on lower prices - have helped boost sentiment, but there is concern that not many as yet are taking on long positions, analysts said. Aluminium touched a two-week high at $1,449 a tonne before easing to close at $1,439 versus $1,405 on Tuesday. Stocks of the metal in LME warehouses fell for the first time since November 6, dipping 775 tonnes, but inventories at 2.8 million tonnes are still near record highs.
"I don't think it's the beginning of a trend," Berry said, noting the small amount of deliveries - 675 tonnes - into the LME that resulted in the net drop. The options expiry on Wednesday for all the industrial metals has had a limited impact. Prices for LME base metals fell last year, with copper down over 50 percent, as demand fell.
Zinc traded as high as $1,214, its highest level since January 27, before closing at $1,180 from $1,174 - helped by news that South Korea had issued a tender to buy 1,500 tonnes of the metal. Lead was up 4.2 percent at $1,219 - its highest point since January 12 - but eased to close at $1,190 from $1,170, while nickel rose to $11,750 a tonne from $11,605 but earlier touched $12,051. Tin climbed to a one week high of $11,500 before tracking back to close at $11,275 versus $11,000.