Copper rose to its highest level in more than a week on Wednesday, lifted by a stronger euro on optimism Greece will be able to secure a bailout package aimed at averting a disorderly default. Benchmark copper on the London Metal Exchange (LME) closed at $8,640 a tonne, up more than 1 percent from a close of $8,481 on Tuesday.
Greek parties will try again to strike a reform deal in return for a new international rescue to avoid a chaotic default after leaders in the coalition of Prime Minister Lucas Papademos postponed what was supposed to have been a crunch meeting on Tuesday until the following day.
The optimistic tone in financial markets helped the euro rise to a two-month high versus the dollar, giving a boost to metals prices as a weak dollar makes commodities priced in the US unit cheaper for holders of other currencies. "Base metals are very macro sensitive. The mood in the broader market has improved today and the market is grasping at any bit of positive news," VTB analyst Andrey Kryuchenkov said.
"At the moment base metals' correlation to equity markets is quite strong. And the dollar is near its December lows against a basket of currencies." Copper has rallied almost 12 percent so far this year to within reach of a four-month high of $8,679.50 hit on January 27. Nickel hit a five-month high, and tin rose to its highest level in six months. Markets will be closely watching data out of China for indications on the health of the world's second-largest economy. China's imports of commodities including crude oil, copper and iron ore are set to have fallen in January as factories shut during the Lunar New Year break, analysts said, cautioning that the outlook for most industrial commodities was bleak.
China is the world's top copper consumer, accounting for around 40 percent of refined copper demand last year. "Particular focus will be given to Chinese inflation numbers. A further deceleration in inflation could open the door for additional cuts in the Reserve Requirement Ratio by the People's Bank of China," Credit Suisse analysts said in a note. "This in turn would be good news for cyclical assets such as industrial metals."
China's focus is expected to shift from anti-inflationary policies to pro-growth policies this year, a move that would boost demand from industrial metals. "Some of the economic slowdown in 2011 was deliberate," Natixis head of research Nic Brown said, speaking at a metals risk conference in London.
"As inflation is peaking we should see a fundamental shift of the developed world towards pro-growth policies." In the medium term, copper prices will be supported by continued supply tightness, which will be felt even more strongly this year as a restocking phase in China should come to an end, analysts at the conference said. "Copper destocking from China's unreported warehouses last year could have been as much as 900,000 tonnes," Brown said. "If you take the destocking element away even a more moderate growth will feel mush stronger."
Natixis forecasts copper will be in a 270,000-280,000 tonnes deficit this year as miners struggle to produce enough red metal to meet demand, amid falling copper grades and strike actions disrupting operations. Strike action could intensify this year under new governments recently elected in large copper producing countries such as Zambia and Peru, Brown said.
In other metals, aluminium closed at $2,253 a tonne, from a close of $2,255 on Wednesday. Aluminium stocks rose to a record high of 5,031,250 tonnes, with 13,450 tonnes flowing into Vlissingen. Total cancelled warrants for aluminium stood at 60,500 tonnes. Zinc, used in galvanising, ended at $2,115 from $2,120. Nickel finished at $21,500 in rings from $21,800, earlier hitting its highest level since early September at $22,150. Tin, closed at $25,400 from Tuesday's close of $25,495. It earlier hit its highest level since early August at $25,880. Battery material lead, finished at $2,181 from $2,186.