Copper surges on US monetary hopes

Copper prices hit a three and a half month high on Thursday, supported by hopes of continued US monetary stimulus. But they later eased back on profit-taking.

The fall in US fourth-quarter GDP raised hopes of continued quantitative easing by the US Federal Reserve. Meanwhile, positive data about US corporate investments as well as a recovery in the housing sector encouraged some short-term traders.

Copper was also supported by early speculative buying ahead of the Chinese official purchasing managers’ index, scheduled to be published later this week. The HSBC PMI data released last week showed the January data at a two-year high.

Copper for three-month delivery on the London Metal Exchange rallied to $8,291.25 a tonne, the highest level since October, but later declined 0.7 per cent to $8,183.50.

Traders took advantage of the copper rally, taking profits after the red metal rose above a technical level of $8,200 a tonne. “There is a lack of conviction in the market,” said Leon Westgate at Standard Bank in London.

On a fundamental supply and demand basis, the uncertainty over output was providing support for the market, as miners were faced with sharp increases in production costs, leading to questions over possible output cuts, said Commerzbank.

Chile’s Antofagasta this week warned of a production cut amid a surge in costs, while Codelco, the world’s largest copper producer, has also reported that costs last year had risen by 30 per cent as a result of higher energy costs and lower ore grades, said the bank.

Meanwhile, nickel for three-month delivery on the LME hit a three-month high of $18,594 a tonne as investors bought the metal to cover their bearish bets. Investors have amassed large “short” positions, or bearish bets on the metal used to produce stainless steel on expectations of a supply glut this year.

However, in the short term, prices could rally, said analysts. While maintaining its bearish outlook on a three to six month view, Goldman Sachs said that “it may be too soon to be establishing short positions in nickel” in the very near-term.

Prices could remain elevated or move higher due to factors including potential purchases by US and European stainless steel producers looking to replenish their inventories, and “further improvement in sentiment towards global demand,” Goldman added.