Copper rises with euro on Greece relief

Tuesday, 21 February 2012 16:46

SINGAPORE: London copper futures rose more than 1 percent on Tuesday after Greece struck a deal for a second bailout package to avoid a default next month, fuelling appetite for riskier assets.

Copper has gained a steep 10 percent so far this year, hitting a five-month top this month as Greece moved closer to securing rescue funds, calming worries about the euro zone debt crisis. But analysts say it may be hard to sustain a run-up in coppper unless demand from top consumer China picks up.

Three-month copper on the London Metal Exchange rose 1.3 percent to $8,346.25 a tonne by 0702 GMT, extending Monday's modest gains, but still below its 200-moving day average of $8,398.47.

The Greece deal involves 130 billion euros ($172 billion) in new financing for Greece and for Athens to work to cut its debt to 121 percent of GDP by 2020, two EU officials said. The euro jumped back to positive territory on the news.

The deal came just days after China announced its first bank reserve requirement ratio (RRR) cut this year, joining global counterparts in easing credit conditions to spur its economy, which helped copper break a six-day losing streak on Monday.

But with Greece needing far more work to fix its economy and other euro zone countries also beset by austerity measures, the positive impact of the deal on financial markets could soon wear off.

"It's a relief for markets, broadly speaking, but it doesn't mean that this is the end of the line," said Thomas Lam, economist at DMG & Partners Securities.

"It's a difficult process, but it's inching in the right direction."

The agreement on the rescue package, subject to strict conditions, will help draw a line under months of uncertainty that has shaken the currency bloc, and avert an imminent Greek bankruptcy.

The most-traded May copper contract on the Shanghai Futures Exchange gained 1.2 percent to close at 60,050 yuan a tonne.

With the Greece burden out of the way, at least for the meantime, investor focus will likely turn to Chinese demand.

Demand from the world's biggest copper consumer has been slack, with copper stocks in Shanghai warehouses at their highest in nearly a decade last week.

China's imports of refined copper fell to 335,480 tonnes in January from a record 406,937 tonnes in December, according to a data breakdown from the General Administration of Customs released on Tuesday.

A week-long Lunar New Year holiday in China slowed import volumes last month, traders said.

Bonnie Liu, commodity analyst at Macquarie Securities in Shanghai, said she sees a seasonal pickup in Chinese demand possibly in April, but only expects a modest increase.

"Except for some seasonal factors it doesn't seem to me that demand is there yet, so prices will likely range trade for a while."