Copper prices (HG-FT) held firm on Friday, buoyed by expectations of stronger demand next year, further investment flows and a weaker U.S. dollar over coming months.
Benchmark copper on the London Metal Exchange was trading at $6,814 (U.S.) a tonne at 1046 GMT compared with $6,790 a tonne at the close on Thursday. The metal used in power and construction earlier this week hit $6,992 a tonne.
Government fiscal packages – especially in China, the world's largest consumer of industrial metals – are expected to start feeding through into real demand next year.
“Demand will come back, there will be stimulus to aid certain struggling sectors and key companies next year,” said John Meyer, analyst at investment bank Fairfax. “We see fresh fund flows into the market.”
Industrial metals alongside other commodities have been helped up by a tumbling U.S. dollar, which makes metals priced in dollars cheaper for holders of other currencies and fund flows as investors look to rebalance their portfolios.
New investment money looking for a hedge against inflationary pressures created by loose monetary and fiscal policy has also helped fuel commodity price rises.
But rising stocks of copper in LME warehouses – above 420,000 tonnes, up more than 60 per cent since the middle of July and the highest since April – will dampen sentiment.
Traders said the market was talking about further deliveries into LME warehouses in Korea, which could be coming from China.
Also on the radar is a bout of profit-taking from hedge funds before their year end on November 30. Profits have to be realised before performance fees can be charged.
“Most of the selling will be before Thanksgiving (next Thursday in the United States), as I'm sure a lot of people will take the opportunity for a long weekend,” a trader said.
Stocks of aluminum (AL-FT) , at 4.59 million tonnes are still within touching distance of the record 4.629 million tonnes seen on September 16 and expected to cap prices of the metal used in transport and packaging.
But news that China will raise power prices for non-residential users by around 5.4 per cent could help bolster aluminum prices..
“We believe that the power tariff increase would materially increase the cost of production of aluminum smelters (by some $50 a tonne) in China where power costs account for more than 35 per cent of total costs,” Liberum Capital said in a note.
“This augurs well for the aluminum price which is currently being dampened by the inventory overhang and overcapacity.”
Aluminum was trading at $2,027, little changed from Thursday's $2,031.
Zinc was helped by the threat of falling supplies from China, partly because of a potential shortage of zinc concentrate from Australia.
The metal used to galvanize steel was trading at $2,239 a tonne from $2,215, battery material lead at $2,345 from $2,332, tin at $14,900 from $14,860 and nickel at $16,908 from $16,975.
Nickel prices are down about 25 per cent since hitting a year high in August because of rising stocks of the metal used mainly to make stainless steel.
Stocks are expected to head for historical highs above 150,000 tonnes.
