US-China tensions drive copper towards first weekly loss since May

LONDON: A deepening US-China confrontation put copper on track for its first weekly loss since mid-May, but analysts expect recovering demand and low stocks to keep prices high.

Benchmark copper on the London Metal Exchange (LME) was 2% down at $6,413 a tonne at 1620 GMT on Friday for a weekly decline of about 0.5%. However, prices remain close to a two-year high of $6,633 hit on July 13.

Copper has rebounded from $4,371 in March as China, the biggest consumer, controlled its coronavirus outbreak, reopened industry and launched infrastructure projects.

A rebound in demand outside China and the low level of copper stocks is likely to power further gains after a correction lower, said BMO analyst Colin Hamilton.

"I'll be expecting copper higher at the end of the year. We are playing the stimulus recovery."

CONFRONTATION: China ordered the United States to close its consulate in the city of Chengdu. US Secretary of State Mike Pompeo called for "more creative and assertive ways" to press the Chinese Communist Party to change.

MARKETS/DOLLAR: Global equities fell sharply and the dollar stabilised near its weakest in two years, helping metals by making them cheaper for non-US buyers.

ECONOMIC GROWTH: China's economy is expected to expand by 2.2% this year, a poll showed, while German manufacturing stabilised, euro zone business activity bounced back to growth and US business activity reached a six-month high in July.

LME STOCKS: On-warrant copper stocks in LME-registered warehouses fell to 52,000 tonnes - a fifth of their level two months ago - after 5,100 tonnes of cancellations.

ShFE STOCKS: Copper stocks in Shanghai Futures Exchange warehouses fell by 963 tonnes to 157,684 tonnes in the week to Friday.

SPREAD: The premium for cash copper over three-month metal on the LME rose as high as $28.50, compared with minus $30 in May, pointing to a tighter market.

OTHER METALS: LME aluminium was unchanged at $1,701 a tonne, zinc fell 1.3% to $2,210.50, nickel slipped 1.2% to $13,640, lead lost 0.9% to $1,809.50 and tin was down 1.2% at $17,605. All remained up over the week.