Copper rose on Tuesday near a one week high as a weaker dollar and better-than-expected German business sentiment temporarily overshadowed longstanding worries that policymakers' efforts to address the eurozone debt crisis are inadequate. Also boosting confidence was data showing US housing starts and permits for future construction jumped to a 1-1/2 year high in November, reducing fears of a global economic slowdown and further rekindling risk appetite.
Three-month copper on the London Metal Exchange (LME) rose to $7,470 a tonne, its best level since November 14, and closed at $7,410 a tonne from $7,260 on Monday, although trading volumes have been tapering off ahead of the year-end holiday season. "It's entirely to do with confidence. Anything that looks slightly positive generally causes a short covering rally," said Citi analyst David Wilson. German business morale rose sharply in December, defying expectations for a decline and underscoring the strength of the economy in the face of a sovereign debt crisis that has hammered growth in other eurozone members.
A rebound in the euro against the dollar helped boost copper's gains. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies. Copper prices have shed nearly one quarter of their value since the start of the year, on track for its first annual decline since 2008, as a deepening eurozone debt crisis has pushed investors to liquidate assets such as industrial metals.
Analysts warned sentiment could remain fragile towards the end of the year in the face of persistent caution about the eurozone crisis as investors grow weary about politicians' inability to contain the region's debt troubles. Euro zone ministers agreed on Monday to boost IMF resources by 150 billion euros to ward off the debt crisis and won support for more money from EU allies, but it was unclear if the bloc would reach its 200 billion euro target after Britain bowed out.
On Tuesday however, sentiment improved after short-term financing costs for Spain more than halved as banks lapped up its debt, with much of the purchasing power said to come from cut-rate money to be lent by the European Central Bank. "We would expect prices to be buffeted about by the news flow but in the absence of any major development we would look for further consolidation, with a downside bias as the technical indicators generally seem to be pointing lower," FastMarkets said in a note.
Aluminium stocks in LME-registered warehouses rose by 49,775 to a new record 4,922,800 tonnes, data showed. Some 28,875 tonnes flowed into warehouses in Detroit. Aluminium ended at $2,002 a tonne from $1,962 a tonne on Monday. Zinc, used in galvanising, was last bid at $1,865 from $1,838. Tin was last bid at $18,975 from $18,695. Tin prices are down more than 30 percent so far this year, the biggest year-to-date percentage decline in the base metals complex.
"Although the self-imposed export ban by Indonesian tin producers has not yet been officially lifted, it has de facto collapsed once and for all," Commerzbank analysts said in a note. Battery material lead closed at $1,959 from $1,937, while stainless-steel ingredient nickel ended at $18,865 from $18,380, having earlier hit $18,999, its best level since early November. The $1.5 billion Ramu nickel project, China's single-largest mining investment in Papua New Guinea, should be operating close to maximum capacity by mid to late-2013, Australian minority partner Highlands Pacific said on Tuesday.