Copper flat, aluminium up

Published Feb 15, 2013

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London - Copper was flat on Friday, outperformed again by aluminium and zinc, but investors hoped a surge of copper buying will emerge when Chinese participants return from holiday next week.

Over the past month, aluminium and zinc have outperformed copper even though both metals have some of the worst supply demand fundamentals, with large market surpluses forecast this year.

Speculators who track momentum and short-term trends such as CTAs (Commodity Trading Advisors) have largely driven the gains, said Stephen Briggs, a metals strategist at BNP Paribas in London.

“Aluminium wasn't doing much during most of this rally, and probably people thought it was time for a catch-up,” he said.

“In zinc, it's hard yet to get enthusiastic about the fundamentals, so that rally looks a little overdone.”

This year, aluminium is expected to have a market surplus of 687,455 tonnes and zinc of 180,000 tonnes, according to median forecasts of analysts polled by Reuters last month.

On Friday, benchmark copper was virtually unchanged, down $1.25 to $8,235.75 per tonne by 13:35 SA time, while aluminium rose 0.4 percent to $2,167 and zinc added 0.2 percent to $2,193.

Three month zinc on the London Metal Exchange (LME) has gained 10 percent since mid-January and aluminium nearly 6 percent, versus about 3 percent for copper.

Copper hit the highest levels in four months on February 4 but has since drifted lower.

Currencies also weighed on metals as the euro hit a three-week low against the dollar.

A weaker euro makes metals priced in dollars more expensive for customers in Europe.

The foreign exchange markets were volatile as G20 officials struggled to find a common form of words on currency manipulation ahead of a summit in Moscow later on Friday, at which divisions within the group over growth versus austerity looked set to flare back into life.

 

RETURN OF CHINA

Many investors are encouraged by recent strong economic data from the United States and China and expect a bout of buying next week as Chinese markets open following a week-long holiday for the Lunar New Year.

“Right now, demand for copper is only coming from China and the US because Europe is a mess,” said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.

“The stock market is quite bullish and people are excited about a Chinese rebound. Given a liquidity improvement ... real demand for copper will pick up,” he said.

While a revival in copper demand is taking root in China, the effect on the copper market will be dampened by sky-high domestic inventories, Liu added.

China's copper stockpiles at the year-end reached record levels above 1 million tonnes.

The return of China may be negative for zinc, Triland Metals said in a note.

“Next week could see selling pressure emerge again when China comes back to work; there are reportedly large stocks of metal there, and these higher prices may see some of that stock being hedged.”

Triland was also wary on whether aluminium will maintain its bullish stance, saying: “It seems obvious that if those gains are not followed up by the rest of the complex, then it might be tough for ali to go any higher.”

In other metals, nickel added 0.4 percent to $18,327 a tonne, lead gained 0.2 percent to $2,410.25 and tin added 0.1 percent to $24,860. - Reuters

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