Copper ended up over one percent on Friday, as demand prospects brightened in top-consumer China after comments from Premier Wen Jiabao signalled a potential shift in the country's monetary policy trends.
Copper's bullish week-end momentum bucked wider downturns in many other commodity markets like gold and crude oil, which buckled under the weight of a firmer dollar, weaker equities and persistent concerns about Europe's debt crisis.
The fact that copper was able to withstand the outside market pressures reflected its relatively strong underlying fundamentals and its heavy dependence on the economic health of China, the world's second-largest economy responsible for nearly 40 percent of global consumption of the red metal. "It's largely China driven," said Nicholas Snowdon, analyst with Barclays Capital in New York.
"Comments from Chinese Premier Wen indicating a victory over domestic inflation has provided some support." Wen wrote in an opinion piece in the Financial Times that he was confident that price pressures will steadily decline even as the country keeps up its brisk economic growth.
As a result, London Metal Exchange (LME) three-month copper peaked at a one-week high at $9,145 a tonne, before finishing up $90 or 1 percent at $9,050 a tonne. The gain boosted the price back above its 200-day moving average, a key area of support over the past month. In New York, the key September COMEX contract settled up 5.90 cents at $4.1155 per lb.
Further evidence of improved Chinese demand was reflected in weekly inventory data from the Shanghai Futures Exchange, which showed stockpiles drop 7.5 percent from a week earlier. Barcap's Snowdown said the hand-to-mouth buying evident in China during the first half of this year has been more than enough to set domestic stock levels in a downward trend.
"If Premier Wen's comments are correct and monetary policy changes tact over the course of the second half of this year, that could improve credit conditions and liquidity and may facilitate some restocking on top of the hand-to-mouth buying that is driving down stocks," he said.
LME copper stocks fell 325 tonnes to 473,700 tonnes. Snowdon also hinted that the narrowing differential between the nearby and further forward LME copper price added to copper's improved fundamental outlook. Nickel ended up $25 at $22,150 a tonne, but has been in a steady downtrend since peaking at just under $29,500 in February. Price pressures may mount as mining companies race to increase production. International Nickel Indonesia will invest $500 million over the next three or four years to develop a nickel project in Central Sulawesi, the miner's chief executive said on Friday.