LME Copper Rises To 7-Month High, Rally Overextended

SYDNEY--Short-covering and a catchup with Comex and the Shanghai Futures Exchange boosted London Metal Exchange copper to its highest level in seven months, but the rally appears overextended, market participants said Tuesday.

Copper rallied 7.7% to $7,899 a metric ton after the four-day Easter closure, realigning with Comex's strong rally after the release of stronger-than-expected U.S. jobs data Friday. Major metals markets were shut Friday but reopened Monday except for the LME.

Fund buying is credited with starting the metals market rally last week, boosting copper and taking nickel and lead prices to new record highs of $50,075/ton and $2,040/ton.

But participants have voiced concern that the rally has little fundamental footing, particularly for copper, where the bull run is masking good availability of copper cathode and reports of Chinese consumers deferring shipments, traders say.

"The market is moving up on perception and sentiment. I'm skeptical of the reasons for the move higher and think there are some games afoot. Fundamentally, the market should be much lower," said one Singapore-based trader.

The market initially moved higher on expectations of strong Chinese copper demand during the second quarter, but following sharply higher imports during January-March this year, restocking efforts are likely to abate, said Macquarie Bank.

"The May holiday is coming, and while we're likely to see imports continuing through April, the arbitrage advantage has been a lot weaker over the past month," Macquarie said, referring to a reversal in LME versus Shanghai Futures Exchange prices that favored imports.

While copper could reach higher still on more short-covering, "hot fund money" made the rally look fickle and momentum could quickly wane, said Investec.

"The market is now eyeing $8,000/ton, but the rally looks overdone in the short term and is due for a pullback. On the other hand, sentiment is firm," said a Hong Kong-based trader.

On the upside, Tuesday's Chinese copper and copper products import data for March showing imports totaling 307,740 tons versus 239,772 tons during February was likely bullish to the market.

"The data indicate domestic market demand is strong, despite the rise of prices since February. We're likely to see LME three-month copper hit $8,000/ton soon," said Wang Zheng at Dalu Futures.

Copper prices breaching the $7,000/ton level at the start of the month have triggered more intensive talk of substitution again, particularly for cable makers opting for aluminum instead. LME aluminum is trailing copper at $2,860/ton.

At 0558, LME three-month copper traded at $7,770/ton, up $440 on the Thursday PM kerb, nickel at $50,075, up $675 and lead at $2,040, up $50.