Copper prices rallied to a two-week high on Tuesday, as an anticipated cash boost for banks from the European Central Bank and a retracement in crude oil prices renewed appetite for risky assets.
The euro traded just below 12-week highs, stocks were firmer and safe-haven German bonds edged lower as the European Central Bank's upcoming liquidity injection supported prices and eclipsed concerns over Greece and the global economic outlook.
The pressure on riskier assets from oil prices also eased as Brent crude futures extended losses and slipped below $124 a barrel.
But analysts were becoming increasingly wary about how sustainable copper prices are, given less than buoyant Chinese demand.
“...copper's rally is getting increasingly hard to justify on fundamental grounds. You have LME stocks of copper falling every day, but stocks in China have risen by more than LME stocks have fallen over the last four months which suggests that demand is not that magnificent by Chinese standards,” said Stephen Briggs, analyst at BNP Paribas.
Three month copper on the London Metal Exchange traded at $8,645 a tonne in official rings, from Monday's $8,536 a tonne close.
Copper earlier hit its highest since Feb. 10 at $8,689, and has climbed around 13 percent so far this year.
China is the world's biggest consumer of metals, accounting for around 40 percent of refined copper demand last year.
Demand from the country has been slow to pick up since its Lunar New Year holidays in late January.
“With quantitative easing in the air investment interest in commodities may continue to increase,” FastMarkets said in a note.
On the economic front, new orders for US manufactured goods fell in January by the most in three years as demand fell across the board from machinery to aircraft, suggesting the economy started the year on weaker footing than expected.
COPPER TIGHTNESS
Copper stocks in warehouses monitored by the LME fell below 300,000 tonnes for the first time in 2.5 years, data showed on Tuesday, while fresh orders, known as cancelled warrants, jumped by 4,700 tonnes mostly in US locations.
There has been a draw on US stocks this year, because Western world premiums, or the price paid on top of metal to take delivery, are relatively cheap due to higher transport costs than from other global locations.
The drawdown in LME copper stocks was one factor leading to a tightening in the copper forward spread said a senior trader in London, which although fuelled by short-covering does show some improving confidence about the global copper outlook.
“It's a combination of things. We know of some material being reserved and shipped from the States to China,” he said.
“There has also been short-covering. The first wave was borrowing from Chinese trade, followed by the physical guys, and
then the financial guys - it's more panic and uncertainty than solidly based on fundamentals or technicals,” he said.
“But overall I have to say people are more confident than at any time in the last three months in the copper market, and this is reflected in the spreads,” he added.
In other metals, b attery material lead was at $ 2,265.50 in official rings, from $2,247 and aluminium traded at $2,348.50 from $2,331.
Tin was untraded in official rings, but bid at $24,100 a tonne from $23,705, while zinc was also untraded in official rings, but bid at $2,136 from $2,100.
Nickel, also untraded, was bid at $20,255 from $20,175. - Reuters