Copper prices rose on Monday as the euro edged up after Greece's parliament approved austerity measures to secure a much-needed bailout, though worries over slack demand in China limited gains.
Benchmark three-month copper contracts on the London Metal Exchange rose 0.47 percent to $8,525 a tonne by 11:56 SA time from $8,485, clawing back some losses from the previous session, when prices fell 3 percent for the first time since early January.
Copper has rallied 12 percent so far this year and last week hit its highest level in nearly five months at $8,765 before giving back gains.
Greece came one step closer to avoiding default on Monday, though hurdles remain, with Europe still waiting for Athens to explain how 325 million euros of this year's budget cuts will be achieved before it agrees to the bailout Wednesday.
The euro rose versus the dollar Monday, edging near a two-month high hit last week, and making dollar-priced metals cheaper for European or non-US investors.
“Avoiding default is positive, it's breathing space, but this issue is going to keep on arising every time Greece has to roll over its debt, Greece is essentially verging on bankruptcy,” said Citigroup analyst David Wilson.
“There's still a sense that the copper rally has been overdone. China hasn't been buying, total global exchange stocks have actually risen since beginning of December and Chinese premiums have been softening over the last month and a half.”
China is the world's top copper consumer, accounting for about 40 percent of total consumption.
Shanghai copper stocks have shot up since early December to 1.5-year highs, making the drawdown in LME copper stocks to 2.5-year lows look a lot less bullish.
Also, the ShFE copper futures curve signals a lack of spot appetite for metal, with front-month prices trading well below third-month prices since early January, having traded at a premium for most of the second half last year.
QUICK RALLY
“This quick rally of copper on the LME over the past months has overshot fundamentals and there could be a risk of price correction from this level by around 8-10 percent before the Chinese come back,” said Macquarie analysts in a note.
“We need a lower copper price to incentivize Chinese buying or a significant pick-up of the construction market from recent lows, which seems unlikely in the near term.”
Some U.S. fund managers, however, continued to buy copper. Money managers in gold, silver and copper futures and options raised their net long positions in the week of Feb. 7, as investor interest in the three metals continued to recover after a recent disappointing performance.
But Citigroup's Wilson said the lack of momentum in prices last week could signal that the upward trend is set to stall or reverse, given the recent rally in copper has been largely technical, spurred by mathematically modelled funds.
In other metals traded, aluminium, used in transport and packaging, rose 0.67 percent to $2,258 a tonne from $2,243, with LME stocks up by 36,825 tonnes to a new record of 5.064 million tonnes.
Top aluminium producer RUSAL Plc said on Monday it expects more companies to cut aluminium output this year, with China accounting for about a third of global cuts, but still forecast that global output would top demand.
Excess capacity in aluminium smelting will drag on for years to come, even while losses weigh on producers, as political pressures in China and Russia to keep jobs and push self-sufficiency prevent or delay plant closures.
Soldering metal tin rose to $25,400 a tonne from $25,045, zinc, used in galvanizing rose to $2,092 from $2,077, battery material lead rose to $2,158 from $2,135, while stainless-steel ingredient nickel rose to $20,936 from $20,705. - Reuters