SHANGHAI: London copper jumped to its highest in a week on Tuesday as investors bet that rising oil prices would stoke inflation, increasing the allure of commodities as a hedge, while falling inventories also supported prices.
"Optimism returned to the industrial metals complex despite a stronger USD," ANZ said in a report.
"This saw a broad-based rally across base metals. Copper was boosted by another fall in inventories on the LME. Stocks are now down nearly 30 percent over the past month, suggesting the market has tightened quickly."
Oil prices rose to their highest level since October on Tuesday as the market priced in a potential output cut led by producer cartel OPEC.
Three-month copper on the London Metal Exchange rose 1.8 percent to $5,657 a tonne by 0353 GMT, extending 2.5 percent gains from the previous session. Traders noted fresh buying by momentum-based funds.
Shanghai Futures Exchange copper also rallied 2.5 percent to 45,540 yuan ($6,608) a tonne. Other Shfe metals held solid gains of 2 to 3 percent, aided by expectations the yuan would depreciate further.
"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 said in a research report, 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."
Fuelling expectations of inflation in China, the yuan weakened to near its lowest in 8-1/2 years on Monday, weighed down by the dollar's continuing strength as overseas investors bet the Trump administration will implement expansionary fiscal policies.
In news, the global world refined copper market showed a 154,000 tonnes surplus in August, compared with a 144,000 tonnes surplus in July, the International Copper Study Group (ICSG) said in its latest monthly bulletin.
The global zinc market deficit narrowed to 19,900 tonnes in September from an upwardly revised deficit of 26,000 tonnes in August, data from the International Lead and Zinc Study Group (ILZSG) showed.
Across other metals, lead prices rallied 1.4 percent on the LME and was limit up in Shanghai's smaller contract.
A global surplus of lead narrowed to 4,400 tonnes in September from a revised surplus of 8,900 tonnes in August.
Tomorrow/next day aluminium contracts on the LME surged to the highest since December 2012 at $18.15 per tonne, flagging tight supply. <CMALT-0>
LME positioning data showed two short holders for December each at 5 percent to 9 percent of open interest, representing around 390,000 tonnes to 705,000 tonnes.
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