SINGAPORE: Copper prices reversed early losses on Monday, focusing on a more positive technical outlook, with some in the market viewing Sunday's reserve ratio hike as a step closer to the end of the monetary tightening cycle in China.
Three-month copper on the London Metal Exchange rose $30 to $9,435 a tonne by 0348 GMT. Shanghai's most-active June copper futures contract rose 280 Yuan to 71,110 Yuan a tonne, after ending last week down 3.5 percent, its biggest weekly drop in a month.
"Each time China raises rates, the market reacts less and less. The level of inflation is still of great concern, but each increases in interest rates and ratios takes us closer to the end of the tightening cycle," said a trader in Hong Kong.
China's central bank said on Sunday it would raise lenders' required reserves by 50 basis points, the fourth time this year it has made such a move.
The move increases the required reserve ratio for the country's biggest banks to a record 20.5 percent, another step in the government's campaign to control inflation.
Technically, copper prices could rebound to $9,500, Reuters analyst Wang Tao said, based on an Elliott wave analysis of short-term market behaviour.
"LME prices are basically still in their range-bound trading pattern and that will continue this week," said Judy Zhu, a commodity analyst at Standard Chartered Bank.
She expected copper to trade below February's record high of $10,180, with an initial floor at $9,000 and further support at $8,800.
She added that the reserve ratio hike and comments from the People's Bank of China on the chances of further tightening would continue to cap prices in the second quarter, while the prospects of a weakening dollar were supportive.
"The likely result is metals will trade in tight ranges."
Over the weekend, the PBOC's chief said the more prudential policy would continue for a while and also that inflation remains higher than the government is comfortable with.
Data on Friday showed Chinese consumer price inflation rose to 5.4 percent in the year to March, its highest in almost three years.
Copper may also see pressure after the International Copper Study Group (ICSG) trimmed its 2011 global copper market deficit forecast to 377,000 tonnes, about 20,000 tonnes narrower than its previous forecast in October 2010.
"There wasn't that much positive news on Friday. Aluminium especially was a bit of a surprise, up 1.6 percent in spite of the predominantly bearish numbers," a Sydney-based trader said.
Aluminium ticked up $1.50 to $2,691.50 a tonne.
"Aluminium is in a healthy upward trend and if oil prices stay high, it will be very supportive. Energy makes up 30 percent of input costs," StanChart's Zhu said.
Oil prices in London and New York fell on Monday but at $123.07 a barrel for Brent and $109 for WTI, were near recent 32-month highs.
Zinc rose $1.75 to $2,399.75. Technically, the upside for zinc may be capped in the near term, said chartist Daryl Guppy of Guppytraders.com.
"Zinc is constrained in the upper section of a broad trading band. Resistance is near $2,600. Support is near $2,200. A breakout above resistance has a target near $3,000."
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