Copper rebounded from one-month lows on Tuesday, lifted by rising equities and a stronger euro, but uncertainty about the outlook for demand kept a lid on prices. Investors were also buoyed by hopes that a meeting of European leaders later in the week might advance plans to tackle Spain's and Greece's debts.
Three-month copper on the London Metal Exchange ended at $8,125 a tonne, up 0.4 percent from Monday's close of $8,094.50 a tonne. It fell to its lowest level since mid-September in the previous session at $8,050. Helping metals prices as a firm euro against the dollar. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies. Adding to the positive sentiment, European equities were also trading higher. Volumes were reduced as market participants attended events organised for London Metal Exchange dinner week.
"Market positioning is relatively light and, whilst the recent economic data out of the US has been good, it is firmer evidence of a turn in China that will drive base metals further from here," Marex Spectron macro strategist Guy Wolf said. China's consumer price inflation eased to 1.9 percent in September from August's 2.0 percent, while producer prices dropped 3.6 percent from a year earlier. Both numbers matched the forecast of economists polled by Reuters.
Analysts say it is hard to predict whether China will be easing policy soon after benign inflation in September showed it has the scope to do so, although evidence is mounting that earlier pro-growth measures are gaining traction, reducing the pressure on policymakers to act as a once-a-decade leadership transition approaches. Copper stocks in warehouses monitored by the LME fell to 210,725 tonnes, its lowest level since 2008, but analysts said the move was not seen as an indication of better demand for the metal used in power and construction, as the stocks may have moved off warrant to non LME warehouses.
"We can't say this is definitely signifying a pickup in demand. It could be a redistribution to stocks off warrant," said Andrey Kryuchenkov, analyst at VTB. Asia-based traders and analysts said consumer demand for copper in China remained weak despite a drop in the discount of spot copper over the ShFE front-month November contract to 100 yuan from as much as 150 yuan on Monday. A Shanghai-based trader attributed the change mainly to a steeper fall in front-month futures' value in recent days, rather than a surge in spot copper demand.
In another sign of sluggish spot demand, the ShFE front-to-third month spread switched to a contango on Monday, after being in backwardation since late July. Analysts moderated downbeat views of copper prices in the final quarter of this year and in 2013 after central bank stimulus, but most expect uncertainty over China to prevent a quick return to bullishness, a Reuters poll showed. Zinc posted its seventh session of losses, falling to $1,898 a tonne at the close, from a close in the previous session of $1,914.50.
Analysts said zinc prices were still under pressure from high LME inventories, which are at their highest in at least four years. Goldman Sachs said in a note on Monday that the global zinc market would see a surplus of 393,000 tonnes in 2012 and 181,000 tonnes in 2013. Aluminium ended at $1,957 tonne from $1,963.50. Nickel closed at $16,930 from $17,905, tin ended at $21,500 from $21,095 and lead ended at $2,113 from $2,106 at the close on Monday.