NEW YORK/LONDON: Copper rose on Friday, capping its biggest quarterly gain since late 2010, as the dollar weakened and a bullish trend in warehouse stockpiles boosted prices even as investors remained worried about the Chinese demand outlook.
Copper rose 11 percent in the quarter, up more than any other quarter since surging of almost 20 percent in the fourth quarter of 2010. The first-quarter gain came on the heels of an 8-percent rise in the final three months of 2011, as European debt crisis fears receded and healthier economic signals in the United States helped drive investment demand at a time when fears about an impending slowdown in China, which accounts for about 40 percent of global copper demand, have escalated.
Analysts were skeptical about whether copper could post its third straight quarterly gain, citing investor concerns about a slowing Chinese economy.
"I am not so sure we are going to see the same type of performance in Q2 ... maybe a little bit more muted with a downside risk, particularly given that China is at risk of a somewhat harder landing than I think most have priced in," said Bart Melek, head commodity strategist with TD Bank Financial Group.
London Metal Exchange (LME) benchmark copper closed up $95 at $8,445 a tonne.
In New York, the May COMEX contract rose 2.85 cents to settle at $3.8250 per lb, after moving between $3.8055 and $3.8520.
Volumes were thin on the last trading day of March, with a little more than 49,400 lots traded in late New York business, down more than 20 percent from the 30-day norm, according to preliminary Thomson Reuters data.
Copper prices in London and New York peaked in the first quarter at $8,765 and nearly $4, but have lost some steam since. Prices have been locked in a $8,100-$8,800 a tonne ($3.70-$4/lb) range for the better part of the quarter as uncertainties about China's ability to steer its economy toward a soft landing weighed.
"Although you do have a market very worried about Chinese demand, metals have been performing surprisingly well," said Barclays Capital analyst Gayle Berry. "I think we will see more range trading for copper unless something convincing sparks a change."
Three-month tin was the best performer in the quarter, ending up 19 percent, while nickel stood at the bottom of the complex, with a loss of 5 percent.
Copper, and most other base metals, received a boost Friday from upbeat US data showing consumer spending increased by the most in seven months in February.
Furthermore, the dollar hit a one-month low against a basket of currencies, extending falls on expectations of more US monetary stimulus and helping the euro hold its ground as the bloc agreed steps to prevent the debt crisis spreading.
A weaker US unit makes dollar-priced commodities such as metals cheaper for holders of other currencies.
LEAD RECOVERS
Underpinning prices, inventories of copper in warehouses monitored by the London Metal Exchange have been falling in the last six months, signalling improving demand for the metal.
After a 2-1/2 month run up, copper inventories in warehouses monitored by the Shanghai Futures Exchange have also started to decline in the past two weeks.
"Falling inventories and strong Chinese imports underscore the positive cyclical picture for most markets," Credit Suisse said in a research note.
"Combined with undervaluation and a neutral trend, we have a rather upbeat outlook for the one-year time horizon."
The market will be looking to the weekend release of Chinese PMIs, which previews the country's giant factory sector before official industrial production data. It's expected to dip to 50.8 in March from a 5-month high of 51.0 in February, according to a Reuters poll.
In other metals, prices of zinc surpassed lead this month for the first time since September 2011, reversing their traditional relationship. The two metals are currently trading at similar levels, but analysts see fundamentals pushing lead prices ahead once again.
"We see lead prices increasing. It has been suffering from short-selling, but I think there is quite a lot of upside potential, particularly because of supply-side support," Barcap's Berry said.
Doe Run declared force majeure on lead output from the sole US primary producer in Herculaneum, Missouri, following a fire last week that will stop production for up to six weeks.
Three-month lead closed up $45 at $2,040 a tonne, and zinc eased $4 to close at $2,001.
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