London 21/04/2011 - Copper marched higher alongside other industrial metals on Thursday morning on the LME, building on the gains of the previous session, but volumes were light as traders sought to square positions ahead of a long holiday weekend.
Activity is expected to remain lacklustre on the LME ahead of a four-day weekend in the UK but Chinese markets will remain open over Easter.
“We still expect dips to be viewed as buying opportunities, with gold and silver viewed favourably by investors seeking to hedge against inflation and debt jitters and the base metals by demand expectations and potential power tariff increases in China,” analyst James Moore of FastMarkets said.
On Wednesday, copper rallied 2.5 percent and aluminium surged its highest since August 2008 on news that Chinese authorities are moving to combat surplus capacity in the domestic market. Three-month LME aluminium broke to another fresh high at $2,750 on Thursday morning.
In foreign exchange markets, the dollar index plummeted to a three-year low against the euro at 1.4647 - investors poured funds into higher-yielding currencies on the premise that US interest rates will remain low relative to other developed economies.
Thursday’s economic calendar brings weekly initial jobless claims at 13:30 GMT, with economists expecting 390,000 claims filed last week, while the Philadelphia Fed Survey and leading indicators are due at 15:00.
GRASBERG DISRUPTION SEEN LIFTING 2011 DEFICIT
A partial suspension at Freeport-McMoRan's Grasberg - one of the world's largest copper mines, producing more than 550,000 tonnes in 2010 - in Indonesia due to an accident has underpinned prices this week
“The market reaction seems justified, as copper production has remained vulnerable to sudden and sharp production outages,” Citigroup said. “The vulnerability to supply disruptions is fairly persistent, as the copper market grapples with structural issues such as ageing mines, falling quality of ores and erratic power supplies.”
“The supply side is likely to sustain its underperformance, with the deficit likely to swell to about 400,000 tonnes in 2011,” it added.
LME copper inventories have fallen about 42 percent from March 2000 to April 2011, with the price of copper rallying about 430 percent.
Copper inventories climbed more than 300 percent over the 2005-2011 period, yet the price has managed to soar more than 50 percent.
Copper was $41 higher at $9,618 per tonne. Stocks rose a net 2,575 tonnes to 456,275 tonnes, the highest since June 2010
The metal has surged almost five percent this week after hitting a one-month low at $9,207 on Monday, when Standard & Poor’s lowered its outlook on the US’ credit rating to “negative” from “stable”.
But it is still around six percent below its all-time record high of $10,190 per tonne hit in mid-February this year.
Nickel was also robust, gaining $298 at $26,698 after stocks declined for the sixth day in a row, falling 270 tonnes to 117,942 tonnes - the lowest since August 2010.
Aluminium gained $20 to $2,750. The next stop for aluminium on the technical charts is $2,779 but analysts are split as to whether the metal is fundamentally overbought, with LME inventories lingering near all-time highs around 4.6 million tonnes.
Zinc was steady, rising $4 to $2,364 despite stocks rising 2,200 tonnes to 814,300 tonnes, the highest since July 1995.
“LME's zinc inventories appear to be increasing endlessly,” Commerzbank said. “With demand expected to rise and the prospect of fetching a good price, China in particular has upped capacity utilisation in its zinc smelters almost to the limit. However, as a result the global surplus is not being reduced.”
Stocks in LME-listed warehouses have risen 16 percent since the start of the year to more than 812,000 tonnes.
Lead traded at $2,622, up $12, although inventories climbed 2,675 tonnes to 304,625 tonnes, the highest since March 1995.
The nearby spread tightness in lead remained wide on Thursday as the April date becomes prompt but the backwardation narrowed from earlier this week - the premium for cash/threes, which was at its widest since January on Tuesday at $60/80, narrowed to $29.50/40.
Tin was unchanged from the previous session at $32,650 and steel billet was indicated at $530/545.
In the minors, cobalt was indicated at $35,000/39,000 and molybdenum was indicated at $37,000/38,500.