July 3, 2012 / 10:00 AM / 8 years ago

METALS-Copper up over 2 pct as short-covering resumes

* Downbeat factory data adds to ECB easing expectations
    * China's services sector expands in June
    * Aluminum rises almost 5 percent after Goldman notes
    * Copper close to being technically overbought

    By Silvia Antonioli and Josephine Mason
    LONDON/NEW YORK, July 3 (Reuters) - Copper jumped more than 2 percent to a
seven-week high on Tuesday as a short-covering rally swept the market higher
amid hopes for further economic stimulus by central banks that could reignite
sluggish industrial demand for the metal.
    An unexpected rise in the services sector of top metals consumer China,
expanding at its fastest pace in three months in June, also lifted market
sentiment.
    Three-month copper on the London Metal Exchange rose 2.5 percent to
a session high of $7,823 a tonne on Tuesday, its highest since May 15, before
paring some of those gains. It was untraded at the close but was last bid at
$7,818 per tonne from $7,625 at the close on Monday.
    In New York, the most-active September COMEX contract settled at
$3.54 per lb, up 2.04 percent from Monday. The red metal hit an intraday high of
$3.5565, its highest since mid-May.
    Copper and other commodities outperformed rises in other financial markets
as short covering continued apace. They were also boosted by the stronger euro.
 
    Speculative investors have been short copper since mid-May, building their
largest bet on lower prices since March 2009 amid deepening despair over the
euro-zone crisis, according to Commodity Futures Trading Commission data.
    But prices on both sides of the Atlantic are approaching overbought
territory, with the Relative Strength Index (RSI), a momentum oscillator that
measures the speed and change of price movement, rising to above 60 for both
contracts on Tuesday.
    It has not been above 60 since February when LME and COMEX were at their
highest levels for the year so far. COMEX was even close to $4 per lb. An RSI
reading above the threshold of 70 is considered to signal an overbought market,
while a reading below 30 is considered oversold territory.
    New York traders were surprised at volumes particularly ahead of the U.S.
Independence Day holiday on Wednesday. Over 56,000 lots had traded in New York,
almost a third more than the 30-day average, according to Reuters data.
    "We're still seeing short covering on the euro-zone news last week. This
isn't the start of a bull run, but I think the hopes of stimulus from the ECB
will start to gear things up," said a ring-dealing trader.
    Aside from a brief pause on Monday when prices eased, shorts have continued
running for cover after the surprise agreement from euro-zone leaders last
Friday and ahead of the European Central Bank meeting on Thursday when
economists believe the bank will cut interest rates in a bid to boost the
region's ailing economy. 
    That, investors hope, would boost demand for industrial metals.
    "The ECB is probably going to reduce the interest rate, China might cut its
interest rate too and there is also speculation that the Fed may come into play
after disappointing ISM data yesterday," Daniel Briesemann, an analyst at
Commerzbank, said. 
    U.S. manufacturing shrank in June for the first time in nearly three years,
adding to signs of a recovery slowdown but raising hopes for more policy easing
by the Federal Reserve.
    Expectations also rose for an imminent cut in the amount of money banks in
China are required to hold as reserves after a state-backed paper urged the move
in a front-page editorial. 
    To shore up economic growth, China's central bank cut benchmark interest
rates in early June, the first such move since the depths of the 2008/09 global
economic crisis. The cut followed three reductions in the bank reserve ratio
since November.

    
    
    APRIL REPLAY
    In the physical market, traders braced for a replay of an April market
squeeze that made copper expensive to obtain quickly, saying major trader
Glencore controlled almost half the inventories of the commodity held in London
Metal Exchange-registered warehouses worldwide. 
    They said a potential rebound of demand in China combined with tightly
controlled LME stocks, could constrict the market in coming months in an even
more severe version of the events of this spring.
    In aluminum, Singapore-based traders reported a pick up in Asian demand
after prices fell to a two-year low of $1,832.25 last week and as large volumes
of the metal remained locked up in financing deals. Premiums for the packaging
metal had risen to $170 a tonne from $140 two weeks ago, they said.
    Investment bank Goldman Sachs said on Tuesday it was bullish about aluminum.
"Aluminum supply growth is expected to remain weak at current prices, and an
expected pick up in consumption globally would likely tighten the aluminum
balance," it said in a note.
    LME three-month aluminum rose almost 5 percent to a three-week high
of $1,993 a tonne. It then closed at $1,983, up from $1,909 at the close on
Monday.
    Three-month tin finished at $19,250, up from $18,900 at Monday's
close, lead at 1,939, up from $1,879 and nickel at $17,290, up
from $16,750. Zinc closed at $1,906, up from $1,872.    
    
 Metal Prices at 1818 GMT
                                                                   
  Metal            Last      Change  Pct Move   End 2011   Ytd Pct
                                                              move
  COMEX Cu       353.70        6.80     +1.96     343.60      2.94
  LME Alum      1981.00       72.00     +3.77    2020.00     -1.93
  LME Cu        7818.00      193.00     +2.53    7600.00      2.87
  LME Lead      1939.00       60.00     +3.19    2035.00     -4.72
  LME Nickel   17290.00      540.00     +3.22   18710.00     -7.59
  LME Tin      19250.00      350.00     +1.85   19200.00      0.26
  LME Zinc      1905.00       33.00     +1.76    1845.00      3.25
  SHFE Alu     15540.00       85.00     +0.55   15845.00     -1.92
  SHFE Cu*     56220.00      680.00     +1.22   55360.00      1.55
  SHFE Zin     14820.00      160.00     +1.09   14795.00      0.17
 ** Benchmark month for COMEX copper
 * 3rd contract month for SHFE AL, CU and ZN
 SHFE ZN began trading on 26/3/07
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