Copper rises sharply

Copper prices rose to a one-week high on Friday after strong labour market and services sector data from the United States reinforced confidence about the pace of recovery in the economy. Benchmark three-month copper ended at $8,570 a tonne, from a close of $8,345 on Thursday. The metal used in power and construction earlier hit its highest level in a week at $8,586.75 a tonne.
The US economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low of 8.3 percent, with nonfarm payrolls rising by 243,000 on the month. The better-than-expected data prompted a surge in US stock index futures and a fall in US Treasuries, highlighting improving risk appetite in financial markets.
Gains in metals prices were capped by a weak euro, which fell to a session low against the dollar following the jobs report. A strong dollar makes commodities priced in the US unit more expensive for holders of other currencies. Although the data paints a rosier outlook for the US economy, analysts warned that direction in metals markets is likely to be dictated to a greater degree by news out of top consumer China, where demand concerns linger.
"This was a knee-jerk reaction but we need the dust to settle a bit and to get a bit more clarity about what is happening in China," said Edward Meir, analyst at INTL FCStone. "The outlook for China is much more important (for the metals market). The fact that premiums there are softening and there has been a big build-up in stock is more of a concern to the market."
Signalling softer demand, inventories of copper in warehouses monitored by the Shanghai Futures Exchange surged by more than one third over the past two weeks, data showed, because of strong imports in January and slower consumption during the Lunar New Year holidays.
"It is difficult to read the numbers because of the Chinese New Year, but nevertheless it does seem the rush of imports was not to go for immediate consumption but rather into stocks, which gives pause for thought," BNP Paribas analyst Stephen Briggs said. A dip in China's non-manufacturing sector also dampened spirits. On Wednesday, government data showed China's factory activity rose in January. But it was a different picture for the services sector, with official data on Friday showing it fell to 52.9 in January from 56.0 in December due to weak property investment.
"Overall, it seems that China's appetite for metals is currently less voracious, particularly after the sharp price increase during the Chinese New Year holiday," Credit Suisse said in a research note. It said Chinese consumers were likely to re-enter the market once prices come off current levels.
Despite Friday's late gains, copper was up only 0.5 percent on the week, as the uncertain outlook for Chinese demand and lingering concerns about the euro zone debt crisis weighed on sentiment. Still, there were some bright spots in Friday's series of purchasing managers indexes, which measure changes in the activities of companies all over the world.
The euro zone's vast services economy snapped four months of decline by expanding last month, albeit very weakly. The PMIs suggested that a recession there, widely expected by economists, will be mild. The metals market is also watching news that commodities trader Glencore is in talks to buy mining group Xstrata that could create a group worth more than 50 billion pounds ($79 billion).
"People will be looking at any implications for this," Briggs said. "Clearly these sorts of mergers increase concentration in the mining industry, which is bullish...but not necessarily good news for consumers." Tin traded at $24,400 a tonne from $24,150, nickel was at $21,305 a tonne from $20,850. Aluminium was untraded at the close, but bid at $2,247 from $2,195. Zinc traded at $2,155 from $2,095 and lead was at $2,225 from $2,164.