Copper crept higher on Tuesday for a fourth day of gains as the dollar fell and funds bought, but the upside was capped by Europe's debt crisis and uncertainty ahead of key data. With markets in China, the world's largest consumer of copper, closed for a week-long holiday, volumes are thin and metals are unlikely to stage dramatic moves, analysts and traders said.
Three-month copper on the London Metal Exchange closed 0.3 percent higher at $8,325.50 a tonne, coming off an intraday high of $8,379.75. It extended gains from Monday, when it rose about one percent. "It's money being put back into the market," said the head of sales at an LME Category 1 trading company. "We're seeing plenty of CTA (commodity trade advisers) activity, certainly yesterday and the tail-end of last week as well...we now see fresh longs in place."
Copper has gained 9 percent since the beginning of September on the back of central bank stimulus measures, but has failed to make more upside progress after touching a 4-1/2 month peak of $8,422 a tonne on September 19. The unexpected expansion in the US manufacturing sector in September helped lift most markets on Monday, including base metals, and pushed the dollar lower as investors' appetite for riskier assets improved. A weaker dollar tends to lift base metals as it makes them cheaper for investors holding alternative currencies.
But euro zone factories suffered their worst quarter since early 2009, and factory activity in China also contracted, suggesting the world's No 2 economy lost momentum for a seventh consecutive quarter. Natixis analyst Nic Brown expects base metals to remain under pressure until China's new leaders are in place and measures to stimulate the economy put into action.
The ruling Communist Party will hold a congress to appoint the new generation of central leaders from November 3. The handover of state posts will be formalised at the annual meeting of parliament probably in March next year. "It may be that we have to wait until the new political team is in place until we really get some traction behind some of these stimulus measures," Brown said.
China has given the green light to 60 infrastructure projects, many of them metals intensive, including plans to build highways, ports and airport runways, worth more than $150 billion, as it looks to energise its economy. This week, the test for the markets will be on Wednesday with the release of US ISM non-manufacturing data and on Friday with the September US labour market report.
"In the run up to these two events, trading conditions are likely to remain choppy," Credit Suisse said in a research note. Among other metals, three-month nickel was one of the biggest movers, sliding 1.5 percent to close at $18,450 a tonne. Deutsche Bank expects cash nickel to lose ground, averaging $17,500 in the fourth quarter versus $18,836 on Tuesday. It has gained 10 percent over the last 2-1/2 weeks.
"We expect that weakness in global stainless steel demand could re-assert itself. We believe that the liquidity induced price rally is in danger of stalling as the market looks for signs of a more sustained improvement in the macro environment," the bank said in its Commodities Quarterly report. Three-month tin jumped 2.0 percent at the close to $22,295 a tonne while galvanising metal zinc fell 0.5 percent to $2,098. Battery material lead ended 0.4 percent firmer at $2,300 a tonne and aluminium finished down 0.9 percent at $2,107.