SINGAPORE--London Metal Exchange copper and nickel rose slightly in Asia Monday, and when London opens, may extend their gains on the back of their strong fundamentals, analysts and traders said.
Three-month copper edged $30 higher from the London Friday afternoon kerb to $6,880 per metric ton, buoyed by its gains in London Friday when copper hit a 2007 high of $6,935/ton.
Better-than-expected U.S. housing data Friday helped strengthen sentiment for U.S. copper demand, and may prompt follow-through buying, said a trader at an international trading house in Hong Kong.
Overall construction spending for February rose 0.3% on month February, the largest gain since 1% in March 2006.
"Some traders are short and would have to cover. This is quite positive," he said.
However, copper is still struggling to break above $7,000/ton, and will need to rally above $6,920-$6,950 to have a run at that target, said another Hong-Kong based trader.
He expects copper may be due for correction toward $6,600 after having gained almost 11% in the past two weeks.
"The market's had a good run, and needs a pullback to draw interest from here," said another Hong-Kong based trader. "There's thin volumes in the market, and because of that (buying), the market's getting overbought."
Standard Bank, in a monthly note, said copper prices will likely rise in April and for most of the second quarter as seasonal demand picks up. It forecasts an average price of $6,900/ton for April, pointing to strong Chinese consumption, falling stocks at LME warehouses and short-covering by funds.
"(There) are still thought to be a lot of shorts still hanging on in the copper market," Standard said. "With the spread now in backwardation again and an uptrend in prices firmly in place, these shorts will be increasingly feeling the heat and looking to cover."
Nickel moved up $200 in Asia, and traders were watching for the potential impact of a strike at CVRD Inco Ltd.'s nickel mine in Sudbury, Ontario.
Although stocks at LME warehouses rose last week, the stock levels remain extremely low and further supply disruptions would only add support, traders said.
The impact may only be on the order of $300-$500 though, given nickel's softness over the past couple of weeks, said a trader at a large Japanese commodity house.
"The market is not as nervous as it was during the previous strikes," the trader said. She expects a slowdown in the U.S. and European steel sectors will damp nickel demand in those markets.
Three-month nickel has fallen 7.2% since hitting an all-time high of $48,500/ton March 16.
In a weekly report, Macquarie Research said it expects China's nickel demand will remain robust in 2007, thanks to the rapid expansion of its stainless steel capacity last year. It forecasts a 28.5% increase on year to 320,000 tons.
At 0700 GMT, aluminum was trading at $2,780/ton in range trade, up $2 on the London Friday PM kerb; zinc was $13 higher at $3,263/ton; lead was up $10 at $1,920/ton; and tin was last quoted at $13,400/ton, and had yet to trade in Asia.
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