Copper rose on Monday, rebounding from falls the previous week, as the euro gained ground against the dollar and a strike in Chile raised concerns over temporary supply constraints. Gains however, were capped by fears of a weaker metal demand outlook, highlighted by below-expectation economic data late last week from the United States.
Three-month copper on the London Metal Exchange closed at $7,450 a tonne, up 0.6 percent from a close of $7,406 on Friday. It hit an 8-month low of $7,331.25 last week and it is down about 9 percent from the beginning of the year.
Helping gains was a rise in the euro against the dollar, which makes commodities priced in the US unit cheaper for holders of other currencies. News that a Chilean union has planned a nation-wide strike for Tuesday which could constrain supply, at least temporarily, also lent some support to copper prices. Top copper miner Chile provides almost a third of the world's supply for the red metal.
"The market saw a correction today as a stronger euro/dollar exchange rate spurred some short covering," T-Commodity consultant Gianclaudio Torlizzi said. "As the metal has been oversold recently, I expect in the next few weeks it could go up to its 200-day moving average ($7,845 at 1547 GMT), also because of improving fundamentals. The news of the announced strike in Chile for example will put upwards pressure on copper premiums."
Premiums are sums that consumers pay on top of London Metal Exchange cash prices to get delivery of physical metal. Chile's copper production has been in the last few years badly affected by frequent strikes at mines which have boosted the metal price.
But demand for the metal, used in power and construction, has been weaker in the last few months while production has grown and the market balance has switched from a deficit into a surplus, according to many. "Many commentators (expect) a lengthy period of surplus for copper, something we have been warning of for fully a year now. CESCO Week may play a leading role in setting the tone for Q2 13," BNP Paribas said in a note to clients.
The world's biggest copper conference, CESCO, gets under way in Santiago, Chile, this week. Chile state miner Codelco also said it expects a moderate global oversupply of the metal this year. In copper in particular, speculators increased their net short by 8,915 contracts to 38,951 contracts in the week to April 2, the latest data showed. That is the shortest the market has been since at least the start of 2006.
Aluminium closed at $1,890 a tonne, from a last bid of $1,886.50 on Friday while zinc, untraded in rings, was last bid at $1,892 from a last bid of $1,883. Tin ended at $22,925 from Friday's close of $22,895, nickel at $16,050 from $15,950 and lead at $2,058 from $2,045.