Copper up on hopes for US fiscal fix

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CopperMine REUTERS

Copper rallied more than 1 percent on Monday as risk appetite improved amid hopes that US lawmakers would avert a looming fiscal crisis and as investors took comfort from a smooth leadership change and better economic prospects in China.

Leading US lawmakers expressed confidence on Sunday that they could reach a deal to avert the “fiscal cliff” that would trigger automatic tax hikes and spending cuts next January even as they laid down markers on taxes and spending that may make any agreement more difficult.

In China, Chinese Vice president Xi Jinping, who will assume the role of head of state in March, praised his predecessor Hu Jintao last week for voluntarily giving up power.

China, the world's top copper consumer, has also announced that its economy was turning the corner and was likely to meet its growth target for the year.

“There's a bit more optimism surrounding the fiscal cliff (and) there's been some relief from what looks like a smooth power transition in China. That said, there are still many macro-economic risks,” said Barclays analyst Gayle Berry.

“Commodities underperformed other asset classes after QEIII (quantitative easing) because of the growth outlook. Some numbers are beginning to turn in China but its going to be a gradual improvement.”

Three-month copper on the London Metal Exchange had gained 1.18 percent to $7,696.25 a tonne by 12:29 SA time, reversing small losses from the previous session, when it also posted its first weekly gain since October 7.

Copper has been one of the poorer performers in the commodity sector this year, pinned back by sluggish global growth and protracted debt problems in Europe.

Prices, up 1 percent on the year so far, have fallen far short of steep gains in wheat, up around 28 percent, silver, around 17 percent higher, and gold, which has rallied about 11 percent since January.

“The trough seems to be behind us on China. If you take historical information like fixed asset investment ... it seems we are on a higher footing,” said Dominic Schnider, head of commodity research at UBS Wealth Management.

“(But) the US industrial production figures on Friday painted a disappointing picture, Europe's numbers have been on the weak side. Purely on macro numbers, why would you want to be more bullish?”

US industrial output unexpectedly fell in October as superstorm Sandy disrupted production, data showed on Friday, but factory activity appeared at a stand-still notwithstanding the effects of the storm.

 

DEMAND DROOPS

In the eurozone, European officials are due to meet on Tuesday and are expected to discuss a two-year funding deal for Greece, keeping investors on edge about a fiscal crisis that still threatens to engulf the region and hurt metals demand.

“Our trade clients, particularly in Europe, tell us of quiet market conditions and planned early plant closures for Christmas ... not a good sign for base metal demand,” Triland Metals said in a note on Friday.

Chile's Codelco has offered its Japanese copper customers a 2013 term premium of $85 a tonne, down 9 percent from its 2012 premium of $93, reflecting a slowdown in demand in Japan and the global economy.

In other metals traded, battery material lead rose 0.57 percent to $1,931 a tonne, with the premiums for cash lead over the three month contract at $10.75 a tonne, indicating the market remains extremely tight.

“Our market balance is showing a deficit in the fourth quarter. This 10 percent move in prices and a backwardation at the front end of the curve is what it feels like when a market moves into deficit,” said Berry.

Soldering metal tin rose 0.54 percent to $20,510 a tonne, zinc, used in galvanising climbed 0.60 percent to $1931.50, aluminium edged up 0.26 percent to $1,956, while stainless-steel ingredient nickel rose 1.07 percent to $16,125. - Reuters



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