Copper was little changed on Monday, supported by equity markets in Europe but constrained by a stronger dollar and concerns that top metals consumer China will step up its fight against inflation and crimp demand. Benchmark copper on the London Metal Exchange ended at $9,630 versus Friday's $9,650 close. Trading was also subdued because of a holiday in the United States.
European equities ended flat after cautious trade ahead of a meeting of finance minister to increase the eurozone's rescue fund. But the euro fell broadly, as hopes for an immediate increase in the fund faded. Earlier rises had helped sustain copper. "It (copper) has rebounded a bit, supported by equity markets, which turned positive," Daniel Briesemann, an analyst at Commerzbank. "I'm a bit surprised the metals market has held up, given big losses in Chinese markets overnight and the strong dollar."
Chinese equities markets fell on Monday after the country's central bank on Friday raised lenders required reserves for the fourth time in just over two months to tame inflation, one of its top priorities this year. "Given the typically high correlation between Chinese equity prices and base metal prices, we're slightly surprised that base metal prices have not suffered more this morning," said Nic Brown, Natixis head of commodities research, economics and strategy.
"For us, it will be difficult for base metal prices to continue their upward trend until inflation begins to moderate and markets can look forward to a period without monetary tightening." Copper premiums for physical material in Europe softened this week as buying slowed ahead of the Lunar New Year holiday in some Asian countries from February 2-8. Nickel prices hit their highest since May 2010 at $26,100 a tonne at one point, before news that a top nickel miner will return to production.
New Caledonia's Societe Le Nickel (SLN), which supplies almost 5 percent of the world's nickel, expects mining to return to normal by Tuesday, following a cyclone that passed over the South Pacific island on the weekend. Nickel closed at $25,835 a tonne, down from Friday's $26,850 close. Inventories of copper resumed their rise, up by 2,775 tonnes net to 379,000 tonnes, the most recent LME data showed.
Copper stocks have largely climbed since mid-December but are still down by about a third from cycle highs hit last February at 555,075 tonnes. Softening spot prices and spreads as well as adequate concentrate and copper scrap supply within Europe were harming off-grade cathode demand, RBC Capital in a research note. "Long players now appear to be putting their chips on the ETF launch and other new, passive investment money coming to the market," it said. Demand for ETF Securities copper exchange-traded product (ETP) has remained modest, last at just under 2,000 tonnes. Cash lead prices have been rising against the benchmark three-months since late November, reflecting a lack of available supply.
Cold weather saps batteries and a recent cold snap in China would have boosted demand for the metal, analysts said. Premiums settled at $31, their highest in more than three years, the most recent data showed. Lead ended at $2,645 versus Friday's close of $2,678 a tonne. Zinc closed at $2,455 a tonne, from $2,457. A harsh winter in China is also curbing output of aluminium, a power-intensive metal. Aluminium closed at $2,435 a tonne from $2,472 on Friday while tin was bid at $26,925 from $26,850 a tonne.