Copper extends rally on global stimulus hopes
NEW YORK/LONDON (Reuters) - London copper futures rolled gains into a fourth straight day on Friday, buoyed by growing expectations of further stimulus action from both the U.S. Federal Reserve and the European Central Bank.
Dollar-denominated copper prices received an additional boost from the euro, which rallied to a three-week peak against the greenback after French President Francois Hollande and his German counterpart, Angela Merkel, said they were determined to do all they can to safeguard the euro. <USD/>
Those comments followed a promise by ECB head Mario Draghi on Thursday to do "whatever it takes to preserve the euro."
"There was a big relief rally after Draghi's comments calmed the market down by saying the ECB will do whatever it takes for the euro zone, and the market is reassured by that," said Nic Brown, head of commodity research at Natixis.
London Metal Exchange (LME) three-month copper firmed $98 to close at $7,568 a tonne, off an intra-day peak of $7,584, climbing further away from Wednesday's one-month low of $7,344.25.
Still, prices of the red metal have slipped about 1.5 percent so far this month.
In New York, the COMEX September contract rose 3.25 cents to settle at $3.4260 per lb, near the upper end of its $3.3790 to $3.4390 session range.
Prices digested and maintained momentum after data showed second-quarter GDP growth in the United States slowed to 1.5 percent, as expected as consumers spent at their slowest pace in a year.
"The U.S. economy is growing, but today's number was right on the fence between stronger growth and no Fed action, and weaker growth with Fed action," said Adam Sarhan, chief executive of Sarhan Capital.
"Today's GDP report is inconclusive ... However, when you put this piece of the puzzle with the other pieces in the global economy, it's still leaning toward further easing."
Whispers are beginning to grow louder in hopes that the U.S. Federal Reserve will announce a third round of bond purchases, also known as quantitative easing, when it meets next week.
Investors worry that demand from top consumer China, which accounts for 40 percent of global copper demand, has been slow to pick up so far this year, dragging prices 9 percent lower in the second quarter.
But China's refined copper consumption is forecast to rise by about 5 percent in the second half of 2012 from a year ago, a state-backed research firm said, led by higher demand from power cable makers as the government takes steps to boost the economy.
Still, the open interest in the LME copper contract has dropped to its lowest level in nearly five years, reflecting a lack of conviction about copper's near term price direction. The latest LME data shows open interest at 233,839 lots, the smallest volume since August 2007.
Analyst Andrey Kryuchenkov at VTB Capital in London expects the rebound in copper and aluminium prices will fade next week in the absence of stimulus measure announcements from central bankers.
"I personally think that copper and aluminium will stall here and probably come back to the July lows simply because I don't think, and economists also don't believe, that QE3 is warranted in any way," he said.
On aluminium, RBC Capital said in a note that price-induced shutdowns by aluminium producers such as Bosnia's Aluminij Mostar could erode a market surplus forecast for this year, potentially paving the way for a price recovery.
"The analyst community is still working on the numbers, but (such) closures could be enough to seriously erode the previously expected surplus," it said.
"Add that to the already tight physical market owing to load out queues at LME warehouses and you have a recipe for a decent short-covering rally," it said in a note.
Bosnia's top exporter, aluminium smelter Aluminij Mostar, will close 12.5 percent of its smelting capacity due to lower metal prices and higher power costs, and could cut more in September.
The roughly 45 million tonne a year aluminium market is seen in a 500,000 surplus this year, according to a Reuters poll earlier this month.
Benchmark aluminium did not trade at the close, but was last traded at $1,903 a tonne in after-hours business, just shy of its intraday high of $1,904.