METALS-Copper rises on China monetary easing speculation

Mon May 13, 2013 12:23pm EDT

* Base metals hold as strong dollar hits gold, oil

* Copper inventories have declined in past few weeks

* U.S. retail sales rise in April

By Silvia Antonioli

LONDON, May 13 (Reuters) - Copper edged up on Monday as weak Chinese factory data for April raised expectations the top metal consumer may embark on further monetary easing, which would underpin demand for metals.

Benchmark copper on the London Metal Exchange closed at $7,415 a tonne on Monday, up from a close of $7,375 on Friday. It rose nearly 2 percent last week and hit $7,480 last Wednesday, its highest in nearly a month.

China's factory output growth was surprisingly muted in April, darkening the outlook for economic recovery and feeding expectations that Beijing may take policy action to support activity.

"There are expectations that there may be a bit more easing on the way because that factory data was weaker than expected," Societe Generale analyst Robin Bhar said.

"That's what is keeping copper in positive territory, and it is quite a resilient performance because the dollar moved quite strongly in the last couple of days and hit gold quite significantly, but base metals have held up."

A surprise rise in U.S. retail sales in April, when Americans bought cars, home improvement materials and a range of other goods, supported the view of resilience in the world's biggest economy as well as helping strengthen the dollar.

A firmer dollar against a basket of currencies pulled gold down more than 1 percent on Monday. A stronger U.S. unit makes dollar-priced commodities costlier for holders of other currencies.

IMPROVING DEMAND

Demand for physical copper has improved, market players said.

This was shown by a narrowing contango , a discount for the cash price against the three-month price, which fell from almost $40 a tonne in March to around $27.50 on Monday.

In another sign of a pick-up in demand, stocks of copper in warehouses registered with the LME and with the Shanghai Futures Exchange (SHFE) have also started to decline in the past few weeks.

"The LME inventories already reached their provisional high back in April. Stocks on the SHFE have also been declining for weeks and last week again. If we simultaneously factor in the huge increase in open interest on the LME, the growing tension on the copper market is literally palpable," Commerzbank said in a research note.

Copper stocks in LME-registered warehouses rose by 2,450 tonnes on Monday to 606,700 tonnes, data showed, but generally have been declining since hitting a decade-high in April at 621,600 tonnes.

Not all this material is readily available for delivery. In the last few months an increasing number of copper market participants have engaged in deals, known as cash-and-carries, which were previously popular mainly in aluminium and zinc.

In these deals, which are made profitable by the availability of cheap financing due to low interest rates, traders agree to store their excess metal in long-term rent deals and sell it forward at a higher price due to a healthy forward prices spread.

"There are maybe about 600,000 tonnes of copper in LME warehouses, but can we get hold of it? As physical demand gets stronger I think we'll get some real evidence that a lot of the copper is not really available because it is tied up in financing deals and it is stuck behind lengthy queues," Bhar said.

Lead closed at $2,008 from $1,994 at the close on Friday, and tin closed at $20,900 from a last bid of $20,825.

Nickel closed at $15,300 from Friday's close of $15,360, while zinc closed at $1,862 from $1,859 and aluminium at $1,867 from $1,872.

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