Expectations of strong physical demand and a weaker dollar drove copper to a one-week high on Tuesday, despite growing doubts about economic growth prospects in the United States, the world's largest economy. Attention was also focused on premiums for aluminium for nearby delivery due to tight supplies and dominant holdings of warrants on stocks of the metal in London Metal Exchange warehouses and cash contracts.
Benchmark copper on the LME closed at $7,382 a tonne from $7,250 a tonne at the close on Monday. The metal, used in power and construction, touched $7,405 a tonne earlier on Tuesday. It hit a three-month peak of $7,527 a tonne on August 4. Industrial metal prices in recent days have come under pressure from US economic data, showing signs of faltering growth, but losses have been limited. "The macro data has been poor across the board ... we're getting a little toppy here," said Edward Meir, energy and metals analyst for MF Global in New York. "I'm looking for a pullback later in the week.
As of August 16, stocks of copper in LME warehouses stood at 405,025 tonnes, a fall of about 25 percent since mid-February. Cancelled warrants - material already tagged for delivery - on LME copper stocks stand at 6.75 percent of total stocks from around 5.5 percent a week ago. That is an indication of stronger demand. "This should mean that copper stocks on the LME will fall below the 400,000 tonne mark for the first time since November 2009 soon," Commerzbank said in a note.
Markets are also watching developments in China, the world's largest consumer of industrial metals. Focus is also on aluminium trading, where large amounts have recently been offered and bought. There is a premium of $5 a tonne for material for delivery on Wednesday compared with material for delivery on Thursday - know as tom/next.
Nearly 34,000 lots or about 850,000 tonnes of aluminium changed hands in tom/next trade so far on Tuesday. The premium or backwardation in the market overrun with supply is attracting aluminium to LME warehouse. Stocks rose 70,825 tonnes to above 4.4 million tonnes on August 16. Aluminium closed at $2,141 a tonne from $2,118 on Monday, zinc at $2,123 from $2,073. A physically backed aluminium exchange-traded product (ETP) planned by Glencore International and Credit Suisse is likely to be launched on a Swiss exchange, a source familiar with the matter said. Tin at $21,350 from $21,100, nickel at $21,950 from $21,550, and lead was untraded but last bid at $2,130 from $2,095 on Monday. Tin earlier hit $21,650, its highest since August 2008.