Copper rises, head for hefty gains

Copper rose on Friday as the euro edged higher, with the metal on track to post its biggest weekly gain in a month, but caution about the outlook for economic growth and demand from top consumer China capped further gains for the metal. Benchmark copper on the London Metal Exchange (LME) closed at $8,530.50, up from Thursday's close of $8,390 a tonne.
The metal used in power and construction is up more than 4 percent for the week, its biggest gain since the last week of January, after a commodity-wide rally on Tuesday as Greece secured its second bailout package. Copper is up around 11 percent so far this year, although investors are finding fewer reasons to stretch the rally with the European economy heading back into recession and manufacturing activity in top copper user China continuing to shrink.
Gains have been partly buoyed by hopes demand from China - which consumes 40 percent of the world's copper - would pick up after the Lunar New Year in January. But demand from China has remained slack, raising worry that prices could retreat sharply. "There is a lot of anticipation of imminent demand from China. It's not clear yet that there has been any pickup in demand since the end of the new year, which is troubling," said Nic Brown, head of commodity research at Natixis.
Underscoring weak Chinese physical demand, stocks in Shanghai warehouses hit their highest level in nearly a decade last week, and dropped by just more than 1,000 tonnes to 216,086 tonnes this week. But the LME copper market is reflecting a lack of nearby supply, with cash copper soaring to a $28 premium against three-month prices, from a $15 discount last week - its biggest move in a year.
"It strikes me as the market anticipating some sort of shortage. We expect there to be substantial deficit in the copper market this year, in the region of 280,000 tonnes. The only reason you didn't see that kind of deficit last year is because there was substantial destocking in China," Brown said.
"Looking ahead, attention will be directed to the G20 summit this weekend and no doubt, the European economic situation will feature heavily at the conference," ANZ analysts said in a note. In other metals, aluminium closed at $2,328. It was untraded at the close on Thursday, but bid at $2,273 a tonne. Zinc closed at $2,080 from a close of $2,048 a tonne, and lead at $2,208 from $2,165 a tonne. Tin closed at $23,850 from Thursday's close of $24,195 while nickel ended at $20,175 from $20,000.