Copper finished firm on Friday, reacting to upbeat data from the United States and Europe that helped restore some market confidence and economic recovery optimism. Still, it was an extremely volatile week for the industrial metal, with prices plumbing five-month lows, as investors moved back and forth between 'risk-on' and 'risk-off' trades due to lingering concerns about subdued Chinese demand patterns, a resurgent dollar, and the increasingly violent swings in markets like silver and crude oil.
"There are a lot of people still worried about an additional commodity sell-off," said Matthew Zeman, head of trading with Kingsview Financial in Chicago. "Copper has benefited from the very positive data, but unfortunately it is going to be susceptible to further downside risk based on further liquidation of the short-dollar, long commodity trade." London Metal Exchange (LME) copper for three-month delivery closed up $65 at $8,790 a tonne.
Despite the positive finish, prices shed over 5 percent on the week for a second-straight weekly decline. In New York, the July COMEX copper contract rose 1.30 cents to settle at $3.9835 per lb, but remained pinned beneath its 200-day moving average at around $4.01.
With prices under pressure, open interest in COMEX copper continued to erode from its January peak, falling nearly 30 percent to its lowest since October 2009. The day started with stronger-than-expected first-quarter growth data in Germany and France, suggesting the economic growth engines of the eurozone were chugging ahead.
"We had very decent numbers today," said VTB Capital analyst Andrey Kryuchenkov. "The eurozone GDP growth data was better than expected, and that reassured investors a little bit." Data from the US showed inflation raced to a 2-1/2 year high in April as food and gasoline prices rose, but there was little sign of a broader pick-up in consumer prices while an indicator of consumer sentiment rose.
While the better-than-forecast data drove investors back into "riskier" assets like the metals, it also gave rise to a rally in the dollar, which cut into copper's earlier gains. A stronger US dollar makes commodities such as metals more expensive for holders of other currencies. Even with this week's increased market volatility, Europe's No 2 copper producer, KGHM, expects copper prices to average $8,000-$9,000 per tonne this year.
Copper demand from China is likely to remain strong despite the country's moves to slow growth to control inflation, the CEO of top European copper producer Aurubis said. China hiked its bank reserve requirement ratio yet again on Thursday, signalling that containing inflation and soaking up excess cash remained its top priority even after signs the economy was slowing down.
"Prices will likely move in line with the sentiment surrounding the Chinese fiscal and monetary policy over the coming weeks," Fairfax said in a note. "The main questions are: Are we coming to the end of the government's tightening program? And how much has already been priced into the market?"
Stocks of copper in LME warehouses rose 800 tonnes to 468,525 tonnes, nearly 35 percent above levels seen early in December, latest data showed. LME stocks of aluminium rose by 32,075 tonnes to 4,622,825 tonnes - well-within reach of the record high above 4.64 million tonnes hit in January 2010.
"It's not surprising because the prompt date is next Wednesday," Credit Agricole analyst Robin Bhar said, referring to the expiry for the May contract. Cash aluminium traded at a premium against the three month contract of $19.50 versus $8 on Thursday. Three-month aluminium, untraded in rings, was bid at $2,565 a tonne from $2,615 a tonne.