Copper rose on Monday as investors decided that S&P's downgrades of nine euro zone credit ratings late last week were largely priced in and focused instead on positive fundamentals while awaiting key growth data from China, due the following day. Benchmark three-month copper on the London Metal Exchange rose more than 1 percent to close at $8,089 a tonne from a last bid of $8,000 on Friday.
The metal last week posted its strongest weekly performance in six weeks. Standard & Poor's stripped France and Austria of their triple-A ratings and cut Italy to the same level as Ireland on Friday. Ratings agency Moody's also weighed in on Monday, saying its Aaa rating for France might come under pressure if the public debt keeps rising or if Europe's debt crisis worsens.
"In the commodity sector the S&P downgrades were already priced in; it wasn't a big surprise," said Credit Suisse analyst Tobias Merath, adding that sentiment has improved lately on brighter fundamentals. "Copper is above $8,000 again and that's a very positive sign. Inventories are down and that's an indication that demand is robust and has even strengthened a bit. Also, cancelled warrants are up so we expect more inventories drawdowns."
Copper lost nearly 21 percent of its value last year largely on fears that Europe's debt crisis could damage the world economy and metals demand. It has gained around 6 percent so far this year, however, helped by strong Chinese import data, successful debt auctions by Italy and Spain and ongoing falls in LME copper inventories.
Inventories of all metals in LME-monitored warehouses dropped and copper stocks fell to 354,575 tonnes, their lowest in more than one year, latest data showed. Rising cancelled warrants, metal earmarked for delivery out of warehouses, also pointed to improving demand.
Markets are now awaiting key Chinese data due Tuesday on GDP, industrial production and fixed asset investment for further clues on the outlook for demand. China consumes around 40 percent of the world's copper. Front-month copper in Shanghai fell into a discount against the most actively traded third month contract last week, signalling demand is fading heading into the Lunar New Year. But on Monday the discount narrowed, suggesting markets may be beginning to price in tighter copper supply after the break.
"After Chinese New Year I expect to see prices picking up again, because demand is still there and quite robust," said Daniel Briesemann, an analyst at Commerzbank. China's businesses will be shut during the week of January 22 for the Lunar New Year celebrations, with Chinese consumers showing a lack of interest before the start of the week-long holidays.
Some remained bearish as demand prospects were clouded by Europe's debt crisis and by signs of slowing growth in China. Data from the US Commodity Futures Trading Commission (CFTC) on Friday showed speculators were cutting exposure to copper. "While the red metal is currently holding above $8,000 as technical buying remains prevalent, we think the risk of a pullback of sorts has increased...," said RBC Capital Markets in a note.
Stainless-steel ingredient nickel closed at $19,425 a tonne from $19,600 and tin finished at $20,850 a tonne from $21,050. Zinc, used to galvanise steel, ended at $1,961 a tonne from $1,960, lead at $2,030 a tonne from $2,011 while packaging metal aluminium rose to $2,161 a tonne from $2,145.