Copper rose nearly 3 percent on Monday as riskier assets were buoyed by policy easing in China, the top consumer of most metals, and as expectations mounted that euro zone policymakers would approve Greece's long-awaited second bailout.
A meeting is scheduled on Monday to approve a 130 billion euro ($171.1 billion) rescue for Greece that should remove the risk of a disorderly default next month.
Although financing gaps remain, a euro zone official said they were not so large as to risk derailing the process.
China's central bank on Saturday cut the amount of cash that banks must hold in reserves, a step that is expected to boost lending capacity by more than $50 billion as the world's second-biggest economy faces a fifth successive quarter of slowing growth.
But traders said China's easing steps may still take some time to filter down to metals product makers, with one major domestic trader saying he expected only an ancillary impact on his business as such steps do not translate directly into better access to loans.
Benchmark three-month copper prices on the London Metal Exchange, untraded in official rings, was bid at $8,235.5 from $8,175 at the close on Friday after reaching a session high of $8,396.5. Copper fell almost 4 percent last week, its biggest weekly loss in nine weeks.
“There is an element of fatigue about this situation in Europe, perhaps reflecting the fact that there's much less risk of a systemic banking crisis associated with a possible Greek default,” said Credit Suisse analyst Tom Kendall.
“We're not seeing Chinese buyers active on international markets, and US copper premiums aren't showing a great deal of signs of life, but looking forward, the US recovery should stay on track and we think China will ease (monetary policy) from here on, which should support demand.”
MAJOR FACTORS
Credit has been a major factor constraining commodities demand growth in China, which accounted for around 40 percent of global refined copper demand last year.
Copper stocks in warehouses monitored by the Shanghai Futures Exchange are at their highest in nearly a decade, data showed on Friday, as traders routed metal to the world's top copper consumer on hopes demand would pick up after the Lunar New Year in January.
“The physical market is still not responding, and it may take more time to consume domestic stockpiles, since stocks built on the ShFE on Friday,” one Shanghai-based trader said.
LME copper stocks in London continued to fall, with the latest data showing a drop of 500 tonnes to 305,875, their lowest point since early September 2009.
But with Shanghai stocks rising, the would-be bullish signal from the data has been called into question.
Supporting copper, however, the China policy easing and Greek bailout hopes boosted the euro versus the dollar, making dollar-priced metals cheaper for European and other non-US investors.
LME cash copper is trading at a discount of just $6 a tonne versus the three-month contract, compared with a discount of $26 earlier this month, possibly indicating that near-term supply is getting tighter.
“On average global (copper) supply has fallen short of plan by more than 6 percent since 2005. Copper was the only major base metal that avoided testing the cost curve in the second half of 2011. The key to copper's elevated price versus cost lies with struggling mine supply,” said Macquarie analysts in a note.
Lead, untraded in rings, was bid at $2,059.50 from $2,056, with LME stocks down 1,975 tonnes at 377,825 tonnes - not far off their highest level of 388,500, hit in October last year.
Tin was $23,575 in official rings from $23,475. Zinc, untraded in rings, was bid at $1,973 from $1,945, aluminium was bid at $2,178 from $2,164, while nickel was bid at $19,740 from $19,650. - Reuters