Copper closed the trading week on a stronger footing on Friday, touching its highest in more than two weeks as evidence of strengthening Chinese demand gave values a firm boost. The bullish momentum, led by another large withdrawal in Shanghai inventories and signs of increased buying in Asian markets, helped copper snap a three-week losing streak but failed to break prices out of their recent ranges.
"We are seeing continued consolidation ... I don't think this is an overtly bullish development," said Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota. "It's more of a sideways churn. If we can't get the market above $4.14 (per lb) on a closing basis in the next couple of days, we can probably expect the bulls to get a little tired and look for the exits again."
London Metal Exchange (LME) three-month copper regained the $9,000-per-tonne level, ending up $121 at $9,071 a tonne. In New York, the COMEX July contract climbed 6.90 cents, or 1.7 percent, to settle at $4.1215 per lb. Volumes remained light. About 36,000 lots traded in New York, about a third below the 30-day norm, according to preliminary data from Thomson Reuters. The day began with overnight data showing copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 14.6 percent from last Friday.
"This, together with lower inventories in LME Asian warehouses, is further evidence of a pickup of Chinese demand," Barclays Capital analyst Gayle Berry said. China is the world's largest consumer of industrial metals, accounting for nearly 40 percent of global demand estimated at 21 million tonnes this year.
However, copper's recovery is still in doubt as patchy US data, a debt crisis in the eurozone and persistent concerns about global economic growth mean commodities will likely run into further downside pressure. "The pullback has seen some buying interest from China but I think we may see copper going below $8,500 per tonne before more Chinese buyers come back to the market," said Randy North, a trader at RBC Capital Markets in New York.
At LME warehouses, copper stocks fell 775 tonnes to 466,250 tonnes. Despite the drop, inventories stand within 1 percent of 10-month highs and are up nearly one quarter this year. LME stocks of aluminium fell 1,075 tonnes, off a record high of 4.71 million tonnes hit on Wednesday. Cash aluminium to the three-month contract is now in a $17.50-a-tonne contango, or discount, that could discourage deliveries to LME warehouses.
Aluminium eked out a $1 gain to close at $2,500 a tonne. "Aluminium looks finely balanced, with strong demand growth being met by even stronger supply growth in 2011. A rising supply surplus means stronger price gains should be capped," ANZ said in a note.