Copper hits 1-week high

Copper jumped to its highest in more than a week on Tuesday as the spotlight fell on strong fundamentals after an earlier flurry of selling triggered by disappointment with manufacturing data from top consumer China.

Benchmark copper on the London Metal Exchange hit $9,921 a tonne, its highest since Feb. 18. It was trading at $9,912 a tonne at 13:16 SA time, up from $9,885 at the close on Monday. The metal used in power and construction hit a record high of $10,190 a tonne on Feb. 15.

News that Chinese manufacturing grew at its slowest pace in at least half a year in February as the government's sustained campaign to tame inflation weighed on industrial activity, sparked a flurry of profit-taking.

“The market has been hot, it doesn't surprise me that the data, which isn't negative, is being used as an excuse to take some profits,” said Eugen Weinberg, an analyst at Commerzbank, adding that copper market fundamentals were strong. China accounts for nearly 40 percent of global copper consumption, which is estimated at around 21 million tonnes this year.

Analysts say falling ore grades, lack of investment by mining companies in new deposits and strong demand mean the copper market could see a deficit this year.

Clues to how much stronger demand could be this year will come later on Tuesday from a survey of manufacturing in the United States, the world's largest economy.

“Base will be looking at the new orders index specifically for future demand trends,” a copper trader said.

WATCHING AVIDLY

Also a positive for copper was a fall in LME warehouse stocks, down 725 tonnes to 420,275 tonnes. “It's not a big number, however it could be the beginning of a trend, the beginning of China's seasonal return to the market, but it could be a red herring,” the trader said.

The copper market is watching avidly stocks in LME warehouses for signs of Chinese buying, which many investors expect will propel copper to new records.

Also on the radar is aluminium as stocks have hovered below record highs for weeks. LME stocks hit a record above 4.64

million tonnes in January 2010.

High stocks have weighed on prices of the metal used in transport, packaging and construction. But that has been offset

by conflict in the Middle East, which houses significant aluminium smelting capacity.

Three-month aluminium was at $2,608 a tonne from $2,600 on Tuesday. Earlier aluminium hit $2,609 a tonne, its highest since September 2008.

“The focus is mainly on aluminium as the MENA region produces about 9 percent of global supply,” said Credit Suisse Private

Banking in a note.

Global aluminium supply this year is expected at around 45 million tonnes.

Zinc was at $2,536 a tonne from $2,520, lead at $2,564 from $2,562, tin at $32,300 from $32,320 and nickel at $29,100 from $28,990.

Traders are also waiting for LME options - contracts which give holders the right to buy or sell the underlying three month futures - expiry on Wednesday.

There are a large number of outstanding call - right to buy - options on tin, nickel and aluminium. – Reuters

(Source: http://www.iol.co.za/business/markets/commodities/copper-hits-1-week-high-1.1034434)