Copper (HG-FT) surged to 14-month highs on Monday as investors bet on economic and demand recovery, but a 40 per cent fall in China's refined copper imports was expected to cap prices.
Three-month copper on the London Metal Exchange was at $6,965 (U.S.) a tonne at 1119 GMT from Friday's last bid at $6,845.
Earlier on Monday the metal used in power and construction touched $7,010 a tonne, the highest since September 2008 and a gain of about 125 per cent since January.
“The fundamentals don't seem to be particularly supportive,” said Dan Smith, analyst at Standard Chartered. “There is a lot of investor interest in the (base metals) complex, pushing things higher.”
A weaker U.S. dollar, which makes metals cheaper for holders of other currencies has also help support copper prices.
Many investors have been piling into commodities since the beginning of April when markets started to believe the worst of the recession could be over.
But traders expect prices to slip later this week as hedge funds take profits – without which they don't get their performance fees – ahead of their year end on November 30.
News that imports of refined copper by China, the world's largest consumer of copper, slid to 169,374 tonnes in October from 282,828 in September weighed on sentiment.
Buying Impetus Traders also mentioned the end of a strike in Chile's Spence copper mine, owned by mining giant BHP Billiton as a reason not to expect further price gains.
“Physical market indicators highlighting an increased availability of metal for prompt delivery suggest that the major buying impetus last week came from the financial sector,” Morgan Stanley said in a note.
Stocks of copper in LME warehouses at 424,925 tonnes are up about 65 per cent since the middle of July and the highest since April. Aluminum (AL-FT) stocks at above 4.59 million tonnes are holding near the record high of 4.629 million touched on September 16.
This is why many analysts think prices of the metal used in transport and packaging – at $2,058 a tonne from $2,060 on Friday – are too high.
However, aluminum prices are up more than 30 per cent this year for several reasons including financing deals which means a lot of the LME stocks are tied up until next May.
“There appears to be ample supply of aluminum to come online – China has demonstrated its ability to bring on capacity over the past 5 years and there is substantial spare capacity both in and outside of China,” Macquarie said in a note.
“However a strong global demand recovery could see the size of the aluminum market rise to as big as 42-45 million tonnes by 2011/2 ... with potentially higher input costs ... putting a floor under aluminum prices over that time period.”
Aluminum consumption for this year is estimated at about 35 million tonnes.
Stainless steel ingredient nickel was at $16,950 a tonne from $16,600, zinc at $2,293 from $2,255, lead at $2,400 from $2,346 and tin at $15,090 from Friday's last bid at $14,950 a tonne.
