SINGAPORE--Steady gains in London Metal Exchange copper Thursday helped firm sentiment toward the base metal complex and set up another rally toward fresh highs, said traders.
Base metals shrugged off the overall weaker tone in the complex overnight after short-covering by Asian consumers pushed copper higher and led to spillover buying in other metals.
As of 0600 GMT, three-month copper was $71 higher from the London Wednesday afternoon kerb at $7,900 a metric ton. Aluminum had edged $9 higher to $2,871/ton and zinc was up $25 at $3,545. Recent record-setting nickel and lead were untraded in Asia, as was tin.
Copper has been charting higher on a near daily basis for almost a month, proving resilient to a sharp pullback. After watching copper again move higher overnight, consumers in Asia who had been waiting on the sidelines for prices to fall rushed to buy, said a trader at a Japanese commodity brokerage.
"Asian consumers had to buy against nearby shipment," he said, adding the extent of short-covering has surprised the market, and many are unwilling to bet that copper won't rally above $8,000 and even up to $8,800/ton.
"Open interest hasn't changed much, (it's been) almost flat in the past five to seven days, even though the price is up a lot."
While Chinese copper demand has been the strong story driving copper higher, a pickup in U.S. demand may be needed for the metal to test last May's record high at $8,800, analysts said.
But the latest outlooks in the International Monetary Fund's World Economic Outlook and the U.S. Federal Open Market Committee's March minutes are sending mixed signals, said Darren Heathcote, an Investec analyst in Sydney.
"(The Fed) is still very much concerned with the specter of inflation, but at the same time, the (minutes) state that they were concerned about growth," Heathcote said. "If that comes, that will be negative for the likes of copper, but the IMF view seems to be that U.S. growth will improve."
Heathcote said he favors the Fed's outlook, though the extent of that slowdown and its impact on fund and speculative sentiment will depend on how the Fed handles the next few months and whether or not job creation remains healthy.
Aluminum was slightly firmer in Asia, albeit in thin volumes. The metal lacks fresh fundamental news and will only chart higher if other base metals gain, said a trader at a large Japanese commodity brokerage.
"Other base metals are going up because of fund buying, and compared with other metals, (aluminum) has the possibility to (catch up). That's why funds have been buying."
However, with the physical market widely expected to be in surplus in 2007 and stock levels at LME warehouses healthy, any rally above $2,900 will encounter producer selling, the trader said.
She added buying interest from the Japanese market has disappeared because prices are higher and the Japanese yen was been weakening against the euro and the dollar.
A Hong Kong-based trader said while most base metals were up in Asia Thursday, the overnight losses in all metals except copper suggest it's overdue for a correction.
"Because other metals have pulled back, I think copper should also do the same," he said. Copper's move has been exaggerated by abnormal levels of short-covering, he said, and a "tremendous effort" would be needed to push it higher. At the same time, demand is steadier at lower levels, and he's expecting a pullback to $7,700/ton.
As of 0600 GMT, nickel was last quoted at $47,001/ton, tin was at $14,150/ton and lead was at $1,995/ton.
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