Copper prices rose sharply on Tuesday after Greece secured a rescue package from euro zone finance ministers to avert an imminent default, helping allay some fears about the euro debt crisis. Three-month copper on the London Metal Exchange (LME) ended at $8,449 a tonne, up more than 2 percent from Monday's close of $8,235.50.
The agreement on the 130 billion euro ($172 billion) bailout programme, while long expected, will help Greece meet repayment needs next month. It sparked a knee-jerk rise in the euro against the dollar, which later pulled back from session highs. A weaker dollar can lift dollar-denominated commodities by making them more affordable for consumers using other currencies.
Many market participants said any relief over the bailout deal was likely to be eclipsed by concerns about more uphill battles for Europe to fix its economic problems. "This does address one of the core concerns that the market has had about the macroeconomy for this year, so although it doesn't mean that we're out of the woods yet, it does go some way in addressing one of the market's core concerns," said Gayle Berry, an analyst at Barclays Capital.
"These are markets that are still very much categorised by a lack of conviction. In the short term what we're going to see is more erratic trading unless we get a series of events or data points that help to allay some of the concerns regarding economic growth."
In related news, the European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future. With the Greece burden out of the way, at least for the meantime, investor focus is likely to turn to Chinese demand.
"The enormity of putting the situation to rest for at least a while will greatly help sentiment in the medium term," RBC said in a research note. Demand from the world's biggest copper consumer has been slack, with copper stocks in Shanghai warehouses last week at their highest in nearly a decade.
But copper stocks in warehouses monitored by the LME continued to fall, with the latest data showing a drop of 450 tonnes to 305,425, their lowest point since early September 2009. China's refined copper imports fell almost 18 percent in January, official data showed on Tuesday, in line with preliminary figures, and analysts said imports were likely to stay weak to March despite monetary easing.
A week-long Lunar New Year holiday in China slowed import volumes last month, traders said. But China's recent announcement of a cut in the amount of cash that banks must hold is expected to boost lending capacity by more than $50 billion and may help spark domestic metals demand.
"Coupled with China's reserve requirement ease, base metals are looking like they may be in a good value zone," RBC said in a research note. "All the metals are trading above their medium-term moving averages and thus look like a good place to form support for an assault higher."
On the supply side, the world's No 3 copper mine, Chile's Collahuasi, halted all mining, plant and port operations after a worker died in an accident at its sulfide plant on Monday. Operations are likely to start to normalise on Wednesday once authorities inspect the mine, a company source said.
The mine, owned jointly by Anglo American Plc and Xstrata Plc, produced 504,000 tonnes of copper in 2010. Chile's copper-rich northern region has been hit by heavy rain, snow and hail in the past few days. Zinc ended at $2,028 from $1,982 at the close on Monday, lead closed at $2,117 from $2,051 and aluminium ended at $2,255 from $2,179. Tin ended at $24,190 from $23,525 at Monday's close and nickel closed at $20,230 from $19,750.