Shanghai Futures Exchange copper rallied 2.2 percent to 36,330 yuan ($5,524) a tonne on Thursday as an overnight tumble in the dollar spurred interest in commodities, including oil, that prompted investors shorting the market to close their positions ahead of the Lunar New Year holiday. In other metals, Shanghai zinc rose 4 percent with sentiment turning positive due to a surge in China's refined imports in December and an expected shortfall in mine supply this year.
But some traders said shipments to China, mostly from Australia, were due to a trade house selling down inventories as prolonged low prices force commodity players to conserve working capital. "There's nothing in galvanised steel production ... to suggest there has been a sudden need to import more metal to meet industrial demand," said a source based in Singapore at a trading house.
"I do think there is some emergence of stabilisation in the sector. As a result, we're starting to see shorts being covered and people repositioning slightly," said strategist Daniel Hynes of ANZ in Sydney. "(But) we still feel there's some downside potential for copper prices in the shorter term." China's copper imports surged by 18 percent in December and reached another record high last year. Beijing continues its efforts to stabilise its real estate markets, a major consumer of copper.
Chinese metal traders and merchants are likely to take longer than usual Lunar New Year holidays this year, betting that spot demand for metals such as copper will stay weak at least in coming few weeks, industry sources said. Signals in China's physical copper market have turned negative. Local physical metal prices have sagged against ShFE futures prices suggesting further weakness for the market.