Copper climbed 3.3 percent to its highest in a week on Thursday, as rising equities aided sentiment while persistent falls in copper inventories raised expectations of further Chinese buying ahead. Copper for three-months delivery on the London Metal Exchange rose to a session high of $4,513.75 a tonne, its highest since April 23 and closed at $4,431 a tonne versus Wednesday's close at $4,370 a tonne.
"We're seeing short covering on the back of higher equity markets," said analyst David Thurtell at Citi, adding comments from the US Federal Reserve, which said on Wednesday the outlook for the US economy had improved a bit, have also helped buoy sentiment. Falling inventories and tightening spreads were among the major drivers behind copper's rise on Thursday and so far this year - an impressive more than 40 percent.
Copper stocks fell 5,675 tonnes to 405,775, having fallen 25 percent or around 140,000 tonnes since late February. Cancelled warrants - material tagged for delivery - saw a fresh rise of nearly 20,000 tonnes, bringing the total amount to 84,000 tonnes - equivalent of 20 percent of total inventories.
Falling inventories tightened the nearby market, widening copper's backwardation - a premium for cash material over three-months delivery - to $11 a tonne from $3 earlier. "Cancelled warrants spiked up which is pretty positive if you think this is Chinese-destined material, which I suspect is the case," said Daniel Brebner, an analyst at UBS.
Dan Smith, metals analyst at Standard Chartered, said the arbitrage opportunity between China and Europe is helping boost Chinese buying, as is data suggesting the economic environment in the world's top copper consumer is picking up. Kazakh miner Kazakhmys seemed to agree, saying demand from China was above expectations, despite a 20 percent fall in its first-quarter copper cathode output. But LME traders appeared to differ.
"There's a lot of activity going on, especially in copper and zinc spreads but without proper liquidity," a trader on the floor of the Exchange said. "I don't think there's any shortage of material but tight spreads are driving the market higher." Traders see the tightness in the tin market as a support for prices as the LME data shows one single dominant position controlling more than 90 percent of warrants on LME tin stocks. Three months price closed at $12,450 a tonne from Wednesday's $12,180.
In industry news weak output and earnings dominated the headlines. Copper output in the world's largest mine, Chile's Escondida, fell just over 30 percent year-on-year in the first quarter, while Antofagasta said its first quarter production was 5.5 percent below the 2008 quarterly average.
Aluminium, used in the auto and packaging industries, ended at $1,494 a tonne from $1,457, despite stocks jumping a massive 18,900 tonnes to a record of 3.78 million tonnes. Zinc, used to galvanise steel, was up at $1,425 from $1,410, while battery material lead ended at $1,331 from $1,330. Nickel closed at $11,650 from $11,400.