LONDON: Copper rallied 2 percent to a one week high on Tuesday, powered by signs of tighter supply and as investors betting on rising US inflation and a further depreciation of the yuan bought the metal as a hedge.
World stocks climbed as investors stuck to the view that US President-elect Donald Trump's spending policies will spur growth and inflation, while oil prices hit their highest since October on hopes for output cuts. China's yuan firmed against the dollar but still hovered near 8-1/2-year lows, as the outlook for the greenback remained bullish after a relentless rally over the past several days in the wake of Trump's election win.
"Supply seems to be tighter than expected and the Chinese are buying up copper as a hedge against yuan depreciation. (But) supply forecasts still point to strong growth next year so one would expect prices to come back," said SP Angel analyst Sergey Raevskiy.
London Metal Exchange copper was up 1.4 percent to $5,637 a tonne by 1111 GMT after hitting a one week high of $5,687. Traders noted fresh buying by momentum-based funds.
Shanghai Futures Exchange (ShFE) copper rallied 3.8 percent while other ShFE metals gained 3 to 6 percent as investors hunted for yield.
In a bid to temper the rally, ShFE said it would raise margins and trading limits on futures contracts including copper, aluminium, zinc, lead, nickel, tin, rebar, hot rolled coil, rubber and bitumen.
But indications of tighter supply in the form of falling copper treatment and refining charges plus bets on continued stimulus in top copper consumer China continued to support the metal.
"Most Chinese players we spoke to (are) expecting good demand for next year of 3 to 5 percent on sustained government stimulus policies and continued signal strength from both customers and national data," Macquarie Bank said, referring to meetings during last week's Cesco copper conference.
"All end-use sectors are believed to be strong expectations were that the new range can be held and dips will be bought." Nickel edged up 0.13 percent to $11,415 a tonne.
Indonesia will cut the royalty charged on sales of processed and refined nickel to 2 percent from 4 percent, a mining ministry official said, referring to a revision of rules on non-tax revenue from the coal and minerals sector.
Aluminium rose 1 percent to $1,738.50 a tonne as tomorrow/next day contracts on the LME surged to the highest since December 2012 at $18.15 per tonne on Monday, indicating tight nearby supply.
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