Copper climbed to a 4-1/2 month high on Friday after the US Federal Reserve launched a new round of aggressive stimulus that investors hoped would help bolster demand for industrial metals. The rally in base metals echoed a rise in risk appetite across financial markets after the Fed said on Thursday it would pump $40 billion into the world's largest economy each month until it saw a sustained upturn in the weak jobs market.
European equities traded higher and the dollar hit four month lows against the euro. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies. Three-month copper on the London Metal Exchange traded at $8,402 a tonne in official rings, from Thursday's close of $8,075 a tonne. The metal used in power and construction earlier hit its highest level since early May at $8,410 a tonne.
"It's clear that the markets have taken a very positive view on the Fed's action last night, and we have seen a strong move up today in markets," said Ross Strachan, economist at Capital Economics. While traders and analysts expect a spike in base metal prices, they doubted if the rally could be sustained for long, as downstream copper demand in China remained sluggish.
"We would caution that we remain very sceptical of the longer-term implications of this. There is a likelihood that the price gains will not be sustained and prices will fall back again as the demand situation is still very poor." Lead rose to its highest level in more than six months, zinc hit its highest in six months, aluminium hit a 5-1/2 month high, while tin and nickel both hit 4-1/2 month peaks.
Copper is on track for a weekly increase of more than 5 percent, which would bring its gains over two weeks to over 10 percent, the biggest two-week rise since November last year. "Copper's next major resistance is 8497. There is increasing technical evidence to suggest that base metal prices are in the first part of a multi week/month move higher; there appears to be a way to go yet," Marex Spectron said in a note.
The spotlight turned again on the euro zone, as finance ministers will discuss on Friday if Spain should ask for financial support after the announcement of the European Central Bank's new bond-buying programme brought Madrid's borrowing costs lower. "We have seen markets take a relatively positive view on recent developments in the euro zone," Strachan said.
"But as we have seen in the past... the initial optimism has often dissipated very quickly and markets have slipped back as the reality of the underlying weakness in those economies comes to the fore." Lead traded at $2,255 in official rings, from Thursday's close of $2,157.50. It earlier rose to its highest since late February at $2,263, while aluminium was at $2,175, from $2,102, having earlier hit its highest since late March at $2,186.75.
In China, aluminium profile manufacturers in Guangdong have reported a rise in orders this month, after a decline in order books in the past 3-4 months. Analysts and industry sources point see this as a sign of recovering demand. Nickel traded at $17,555 from Thursday's close of $16,750. It earlier climbed to its highest since early May at $17,633. Tin was at $21,390 a tonne from $20,350, having earlier also risen to its highest since early May at $21,550.
Indonesia's biggest tin miner PT Timah forecast production would be at least 38,000 tonnes this year, an official at the state-owned firm said on Friday, little-changed from the previous year. Zinc was untraded in rings, but bid at $2,103 a tonne from Thursday's close of $2,036. It earlier rose to its highest since mid March at $2,113.