Copper jumps, US data persuades funds to cover shorts

06 Oct, 2015

Copper prices jumped on Monday, as growing expectations that loose monetary policy in the United States will prevail for longer convinced some consumers to hedge their needs and persuaded funds to cover shorts. Benchmark copper on the London Metal Exchange closed 1.5 percent higher at $5,178 a tonne from an earlier session high $5,224. Traders said the start of the new quarter is normally when consumers decide whether to hedge, and that some had been waiting for Friday's US jobs report.
The data, which showed the world's largest economy added only 142,000 jobs last month, has led many to expect the Federal Reserve to delay raising rates until 2016. This sparked a flurry of buying on Friday afternoon and earlier on Monday, which triggered some stops on funds' short positions, or bets on lower prices, and fuelled the rally. "The market is postponing its expectations of a mid-term rate hike," said Jens Pedersen, senior commodities analyst at Danske Bank.
The prospect of a delayed Fed rate increase has also weighed on the dollar, which has supported prices. A weaker dollar makes commodities denominated in the currency cheaper for non-US buyers. Prices also took direction from wider market moves on Monday. "It's trading with Glencore more than anything else these days and Glencore stock was up sharply," said Edward Meir, analyst at INTL FCStone.
Shares of global miner Glencore were up more than 15 percent by late afternoon Monday, spurred by hopes that the group's debt-cutting plans were on track with a sale of a stake in its agricultural assets. But concerns persist over slowing growth in Chinese demand. China is the world's largest consumer of copper, accounting for nearly 50 percent of global demand.
"The main thing is what will happen with China, will they have a hard landing or not?" Meir said. Analysts expect copper to find further support over coming months as producers scale back output and inventories fall. "Basically what we're seeing is the market starting to adapt to a situation with lower growth, lower investment and lower manufacturing activity from China," Pedersen said. "It's setting a floor on prices."
Zinc closed 1.1 percent down at $1,666, tin gained 0.1 percent to $15,595 and nickel slipped 0.8 percent to $9,950 a tonne. Lead was untraded in official rings but bid at $1,625, 1.1 percent below Friday's close. Three-month aluminium gained 0.5 percent to $1,565 a tonne. However, oversupply and a market surplus are expected to weigh on prices.

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