Copper rallied to a two-week high on Wednesday, as investors returned to commodity markets, but doubts about short-term fundamentals are expected to cap prices. Benchmark copper on the London Metal Exchange closed at $9,061 a tonne from $8,799 at the close on Tuesday. The metal used in power and construction earlier touched $9,075 a tonne, its highest since May 5.
Other metals climbed. Zinc and lead rose some 5 percent, with the latter also touching a two-week high. "Generally sentiment has improved ... and generally more stable equity markets, and the feeling maybe that what we went through in the last few weeks was simply overdone," Credit Agricole analyst Robin Bhar said. A stronger dollar and renewed concerns about global economic growth were behind crashing commodity prices in the first two weeks of May.
Last week copper fell to $8,504 a tonne, its lowest since December last year. "Investors are feeling their way back slowly, there's a general feeling the sell-off was overdone," a metal trader said. "But I don't think we've seen an end to losses. Dollar strength and some bad economic news from China or the United States is all it will take."
China is the world's largest consumer of industrial metals, accounting for nearly 40 percent of global demand estimated at around 21 million tonnes this year. The second largest consumer is the United States. Weighing on copper are rising inventories, which in LME warehouses have surged about 35 percent to 467,800 tonnes since December 9. "The base metals will continue to face headwinds from lacklustre demand in China and Japan, but a short-term rebound in prices seems likely in the weeks ahead," Standard Chartered said in a note. "Aluminium is now struggling under the weight of heavy stock inflows to the LME, which is depressing prices."
LME stocks of aluminium rose 1,325 tonnes to hit a record high of 4.71 million tonnes. A backwardation, or premium for the cash aluminium contract against the three-month contract - $25 a tonne on Monday - in recent days has attracted metal to LME warehouses. However, cash aluminium to the three-month contract is now in an $11 a tonne contango or discount and that could discourage deliveries to LME warehouses. Aluminium closed at $2,556 a tonne from $2,501 at the close on Tuesday.
Aluminium prices are up more than 30 percent since last June, partly because of expectations of stronger demand and partly because of bank financing deals which have tied up about 70 percent of LME stocks. Zinc closed at $2,188 a tonne from $2,091 while lead ended at $2,445 - its highest since May 5 - from $2,309 a tonne. The global lead market was in surplus by 24,000 tonnes in the first quarter, the latest monthly bulletin from the International Lead and Zinc Study Group showed. The zinc market was in surplus by 111,000 tonnes in the same period. Nickel ended at $24,675 from $24,150 and tin ended at $28,400 from Tuesday's last bid at $27,875 a tonne.