Copper rose for a second day on Friday, supported by tentative signs of improved metals demand in top consumer China, but gains were capped by a stronger dollar and persistent worries about Chinese economic growth. Data on Friday showed that copper in warehouses registered by the Shanghai Futures Exchange fell by 4,713 tonnes or 2.4 percent over the past week, bringing the total decline since the start of April to nearly a quarter.
There have also been other signs of increasing demand by Chinese industry recently. "We have anecdotal evidence that stocks at bonded warehouses in China are declining and spot premiums in China are up, so those are also positive trends," said analyst Andrey Kryuchenkov at VTB Capital in London. "LME copper will trade on expectations on what is going to happen in China."
Three-month copper on the London Metal Exchange ended up 0.40 percent at $7,309 a tonne, after opening at a session low of $7,234, and extended a gain on Thursday. Copper was also boosted after a minister said the Democratic Republic of Congo expects its ban on the export of copper and cobalt concentrates to come into full force by July or August. In the United States, meanwhile, May consumer sentiment rose to its highest in nearly six years, and a gauge of future economic activity in April rose to its highest in nearly five years.
Copper was still down 0.8 percent for the week, however, after falling to a 1-1/2-week low of $7,101 on Wednesday. Investors have been cautious, because positive trends in China have failed to translate into stock draws on the LME. LME copper stocks, which rose again on Friday, have climbed 10 percent since early April. Gains on the LME were also capped on Friday after the dollar rose against a basket of currencies to near a 10-month high, making dollar-priced commodities more expensive for buyers outside the United States.
There was also concern about economic growth in China, which accounts for around 40 percent of global copper consumption, after its top leaders agreed that reforms were more important than stimulus, sources close to the government said. Chinese copper imports have fallen this year as the economy has recovered at a modest pace, driving prices down by nearly 8 percent so far in 2013.
Investors were also concerned that some Chinese lenders have stopped funding small copper importers, which could lift international supplies and pressure prices further. "Given the slightly weaker growth we are expecting out of China, that means demand will come off and there's potential for disappointment in copper imports in May, with financing deals being curbed," said Natalie Rampono, commodity strategist at Australia and New Zealand Banking Group.
The most-traded September copper contract on the Shanghai Futures Exchange closed up 1.8 percent at 52,980 yuan ($8,600) a tonne after falling for the past three sessions. Lead rose 1.05 percent to close at $2,014 per tonne, as LME stocks fell, bringing the total decline since early December to 34 percent. "Macro risks aside, we believe the fundamental picture offers limited downside risk to lead prices in the near term," analyst Gayle Berry at Barclays in London said in a note. "We believe these (falling stocks) reflect a tightening in fundamentals due to the constraint on supply dynamic from lower prices."