METALS-Copper rallies to 3-week high on tight supply

Fri Apr 27, 2012 4:17pm EDT

* Copper logs second weekly rise, set for monthly drop
    * S&P cuts Spain's ratings by two notches
    * China copper stockpiles near record 1 mln T-Stan Char
    * Coming up: U.S. ISM manufacturing index Tuesday

    By Chris Kelly and Harpreet Bhal	
    NEW YORK/LONDON, April 27 (Reuters) - Copper rallied to its highest level in
three weeks o n F riday, with a weak dollar and growing signs of supply-side
tightness helping it extend a strong recovery from Monday's near 2-percent
plunge. 	
    The metal rose for a second straight week, with prices maintaining momentum
above the 200-day moving average for a second day running. The ability to hold
above the 200-day suggested the likelihood of further upside in the week ahead
even as European debt problems and growth fears in top consumer China lurk.	
    "It looks like we have put in, at least, an intermediate bottom here," said
Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota.	
    "We've had four solid days. We've pushed up to an area where it's got to be
beyond short-covering ... there's some longs coming in."	
    London Metal Exchange (LME) benchmark copper peaked at $8,433 per
tonne, its highest since April 4, before going untraded at the close, and last
bid at $8,415. It closed on T hursday at $8,322.	
    In New York, the active July COMEX contract rose 5.15 cents to settle
at $3.8250 per lb, after moving between $3.7545 and $3.8305, another three-week
high.	
    COMEX volumes topped 86,000 lots in late New York business, down slightly
from Thursday's count of close to 115,000 lots, preliminary Thomson Reuters data
showed.	
    After the close, U.S. Commodity Futures Trading Commission data showed money
managers raised their bullish bets in COMEX copper by a mere 14 contracts in the
week ended April 24, bringing their net long position to 2,217 contracts.
 	
    Stocks of the red metal in Europe, the United States and Asia have been
falling as it is shipped to top consumer China, where still-stagnant demand
means copper is piling up toward record highs. 	
    Copper in LME-registered warehouses fell to their lowest levels since
November 2008 at 251,825 tonnes, with cancelled warrants -- the metal earmarked
for delivery -- at 39.5 percent of total stock. In Shanghai, copper stockpiles fell to the lowest since February at 204,762 tonnes.	
    "What we are seeing in stocks is supportive for prices. Cancelled warrants
remain very strong, on the LME the market is still in steep backwardation and we
are also seeing inventory draws," said Andrey Kryuchenkov, analyst at VTB
Capital. 	
    "This has helped copper push through the $8,200 level and the long-term
range that we have had since January."	
    Copper remains plentiful in China, Standard Chartered said in a note, even
as the seasonally strong second quarter gets under way. It estimates bonded
inventory at 600,000 tonnes, and total Chinese stock near record highs around 1
million tonnes. China accounted for 40 percent of refined copper demand in 2011.	
    "(Local industry) expect domestic demand to continue its seasonal
improvement going into May, mainly because air-conditioner production should
rise and wire and cable demand is likely to improve," it said.	
    "However, no one sees a surge in demand from here. A seasonal improvement in
demand will help reduce stockpiles somewhat, but we do not expect significant
declines as downstream consumers remain cautious about buying on soft order
books."	
    Copper prices received an additional boost from the dollar, which slumped to
multi-week lows against the euro and other currencies after a report showed U.S.
economic growth cooled in the first quarter, raising the prospect of further
stimulus from the U.S. Federal Reserve. 	
    A softer U.S. unit makes dollar-priced commodities such as metals cheaper
for holders of other currencies.	
        	
    	
        	
    EURO ZONE WORRIES 	
    Worries about the debt crisis in Europe kept gains in check after Standard &
Poor's cut Spain's credit rating by two notches. 	
    The downgrade has once again ignited fears over the euro zone with investors
worrying whether countries such as Portugal, Italy, Greece and Spain, also known
as the "PIGS" economies, would be able to service their massive pile of debt.	
    "Spain's rating downgrade by S&P late yesterday evening has destroyed the
positive market sentiment which had prevailed yesterday," Commerzbank analysts
said in a note. 	
    Spain's sickly economy faces a "crisis of huge proportions", a minister said
on Friday, as unemployment hit its highest level in two decades. 	
	
 Metal Prices at 1936 GMT
                                                                  
  Metal            Last      Change  Pct Move   End 2011   Ytd Pct
                                                              move
  COMEX Cu       382.35        5.25     +1.39     343.60     11.28
  LME Alum      2107.50       21.50     +1.03    2020.00      4.33
  LME Cu        8415.00       93.00     +1.12    7600.00     10.72
  LME Lead      2139.00       15.00     +0.71    2035.00      5.11
  LME Nickel   18095.00     -105.00     -0.58   18710.00     -3.29
  LME Tin      22500.00      190.00     +0.85   19200.00     17.19
  LME Zinc      2040.00        5.00     +0.25    1845.00     10.57
  SHFE Alu     16175.00       -5.00     -0.03   15845.00      2.08
  SHFE Cu*     58480.00      190.00     +0.33   55360.00      5.64
  SHFE Zin     15600.00        5.00     +0.03   14795.00      5.44
 ** Benchmark month for COMEX copper
 * 3rd contract month for SHFE AL, CU and ZN
 SHFE ZN began trading on 26/3/07
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