Copper surged to the highest level in over three weeks on Thursday as bearish investors closed out positions amid a stock market recovery, strong US economic data and signals that European monetary stimulus could be extended. Aluminium also shot up, touching a one-month peak on the London Metal Exchange, but some investors were preparing a renewed attack on the downside.
Three-month LME copper closed up 2.5 percent at $5,246 a tonne after reaching an intraday peak of $5,314, the highest since August 11. Copper, which gained 1 percent on Wednesday, has recovered after sinking to six-year lows early last week of $4,855. It was the best performer in the base metals complex partly due to a fall in available LME inventories, analyst Leon Westgate at ICBC Standard Bank said.
"A sharp fall in on-warrant inventory is adding to a sense of tightness in the nearby spreads and sparking further short covering interest," he said in a note. The overall metals market got a boost from a rise in global shares after the US trade deficit fell to its lowest in five months and the European Central Bank indicated it could prolong its stimulus program.
"There's definitely less of an extreme sense of volatility in the broader macro sense... so it's understandable that some investors have covered their shorts, taken profit on their positions," said Nicholas Snowdon, metals analyst at Standard Chartered. "But there's no doubt that with prices of metals rising, they're offering renewed entry points for new short positions. There's pretty significant downside for most of the metals, but particularly for zinc, nickel and aluminium." Standard Chartered forecasts copper to average $4,900 a tonne in the fourth quarter.
The Shanghai Futures Exchange is closed for two days as China celebrates the anniversary of the end of World War Two. Trading will resume on Monday. Nickel climbed 2 percent to finish at $10,000 a tonne, shrugging off news that Indonesia was still considering whether to allow firms with smelters to export ore as part of a package of incentives intended to spur growth in the sector. Aluminium ended 1.9 percent firmer at $1,630 a tonne after attaining a one-month high of $1,641, while zinc dipped 0.4 percent to $1,811.
Looming shortages in the zinc market, which some investors had expected to boost prices this year, will be delayed, said Andrew Thomas, senior zinc analyst with Wood Mackenzie. "As there are adequate stocks of concentrate in the market at the moment, the true impact of the closure of Century, Lisheen and a number of other mines will not be felt at a global level until 2017," he told the Reuters Global Base Metals Forum. Lead closed up 0.2 percent at $1,718 a tonne, but tin failed to trade in closing open outcry activity and was bid down 0.2 percent at $15,200 after rallying nearly 4 percent on Wednesday.