METALS – Copper Follows Rising Equities for Strong Finish, Reports Reuters

Copper Experiences Recovery from One-Week Low Amid Thin Trading

Copper prices rebounded from a one-week low, closing higher on Tuesday, supported by favorable technical factors and a rise in equity markets. This increase managed to break a three-day losing streak, although trading remained relatively subdued.

In contrast, aluminum surged to a 2.5-year high, driven by ongoing unrest in the Middle East, which has heightened expectations of rising costs for this energy-intensive metal.

Despite the rebound in copper, the trading activity appeared cautious, reflected in the declining volume over recent weeks. Analysts indicated that this trend is likely to persist until the end of the month and quarter.

"The volume has been alarmingly low. It seems everyone is in a wait-and-see mode," noted Zachary Oxman, managing director at TrendMax Futures in California. He emphasized that market participants are unlikely to take on additional risks before the end of the month.

The London Metal Exchange (LME) reported that three-month copper closed up $55, finishing at $9,590 per tonne, after touching a one-week low of $9,429.50. However, COMEX copper was unable to maintain its late gains, slipping 0.35 cents to settle at $4.3465 per pound, influenced by resistance at its 20-day moving average.

Trading volume remained sluggish, with around 31,700 lots exchanged by early afternoon, nearly 40% below the 30-day average. Analysts attributed copper’s price increase to the performance of U.S. equities, amidst a lack of significant new information.

"The VIX is down again, and with U.S. stocks trending upward, we are seeing a bounce back," said Andrey Kryuchenkov, an analyst at VTB Capital, referencing the Chicago volatility index, which tracks market uncertainty. He added that without substantial inventory drawdowns or an increase in physical premiums, copper is likely to stay within its current trading range.

Copper prices are now approximately 6% below their mid-February peaks, which were recorded at $10,190 per tonne in London and $4.6575 per pound in New York. The increase in LME warehouse stocks and weak demand from China have led to questions regarding predictions of a production deficit for the year.

Standard Bank recently highlighted that the inventory levels in China suggest the market might be more balanced than initially anticipated, raising the possibility of a small surplus instead of a deficit.

Furthermore, Chile’s Collahuasi mine, the third-largest copper mine globally, is nearing the end of a three-month force majeure on concentrate sales, as port repairs are expected to be completed by late April.

Recent data indicated that LME copper stocks fell by 400 tonnes to 439,500 tonnes. Nevertheless, inventories have surged by over 25% since mid-December and are currently at their highest point in eight months.

The market is also experiencing a $14.50 contango for copper, contrasting sharply with a $70 backwardation seen in December, highlighting the changes in inventory dynamics.

Aluminum’s Surge amid Rising Energy Costs

Aluminum prices climbed to their highest level since September 2008, driven by strong demand and escalating energy costs. Analysts noted that aluminum is uniquely produced in significant quantities in the Middle East and is particularly vulnerable to shifts in global energy prices.

"Japan’s situation, while not directly influencing aluminum production, implies rising worldwide energy costs, which heavily impact aluminum," explained Stephen Briggs from BNP Paribas.

Power costs are crucial, accounting for around 35% of aluminum’s total cash costs, underscoring the metal’s sensitivity to energy price fluctuations.

Aluminum closed at $2,648 per tonne, up from a previous bid of $2,615.

In the oil market, prices also turned positive after reports indicated that Libyan leader Muammar Gaddafi’s forces had halted a rebel advance, raising concerns among investors regarding the resolution timeline of the ongoing conflict in Libya, a member of OPEC.