Copper rose on Friday as funds reversed bets on lower prices ahead of economic data from top consumer China, but a stronger dollar capped gains. Benchmark copper on the London Metal Exchange closed up 1.6 percent at $4,970 a tonne in official rings. The metal used in power and construction was on course for its first weekly loss since the week to February 12 as it continued to trade electronically.
Many traders and funds, which last week and earlier this week sold copper, are buying it back ahead of industrial output and investment data over the weekend from China, which accounts for nearly half of global demand estimated at 22 million tonnes. "Industrial production data will give us a clearer picture of what's going on with Chinese demand," Macquarie analyst Vivienne Lloyd said. "Copper deliveries into ShFE (Shanghai Futures Exchange) took copper down about $10, but it didn't take long before they rallied again."
Stocks of copper in warehouses monitored by ShFE rose more than 45,000 tonnes from last Friday to 350,138 tonnes, suggesting surplus material on the Chinese market. Weighing on metals was a higher US currency, which makes dollar-denominated commodities more expensive for non-US firms, a relationship used by funds to generate buy or sell signals from numerical models. Lifting prices was data from the International Copper Study Group showing the copper market would see a small deficit of 56,000 tonnes this year. Analysts say bearish views on copper are being scaled back and that copper would probably trade in a higher price range over coming weeks, while traders expect the 200-day moving average near $5,040 to cap the upside.
"Commodity markets are showing signs that the worst may be over. Slightly better fundamentals have seen investors reduce the probability of downside risks, which has elicited a wave of short-covering," ANZ analysts said in a note. "Sentiment has also picked up, with a glass-half-full approach being taken to weaker-than-expected economic data. This is not to say we are completely out of the woods."
Three-month aluminium edged 0.2 percent higher to $1,561.5 a tonne, but oversupply, mainly due to Chinese exports, means aluminium is likely to underperform other industrial metals. While cutbacks by loss-making Chinese aluminium smelters are expected to help push the global market into a deficit this year, the upside is limited, said analyst Michael Widmer at Bank of America Merrill Lynch. "The risk that idled capacity is restarted remains an overhang to the market (so) sustained aluminium price rallies above $1,750 a tonne (77c/lb) are unlikely," he said in a note. Zinc climbed 2.1 percent to close at $1,802.5 a tonne in official rings, lead rose 1.9 percent to $1,852, nickel ended 0.9 percent to $8,830 and tin rose 0.5 percent to $16,700 a tonne.