Copper Climbs With Tight Stocks, Demand in Focus

Copper climbs with tight stocks, demand in focus

Copper Market Dynamics

Jan 21 (Reuters) - Copper prices rose on Wednesday after a sharp decline in the previous session, as investors focused on tight inventories outside the U.S., even as traders questioned whether demand would be sustained.

Benchmark three-month copper on the London Metal Exchange was up 0.4% at $12,796 per metric ton as of 1700 GMT, after closing down 1.6% on Tuesday. The metal hit a record high of $13,407 one week ago.

"While the broader base metals complex remains volatile, structural tightness continues to underpin prices," Neil Welsh, head of metals at Britannia Global Markets, said in a note.

Current Price Trends

The premium of the cash LME copper contract over the three-month forward spiked to more than $100 a ton on Tuesday, indicating strong demand for near-term metal, but the spread flipped into a $23.50 a ton discount on Wednesday.

Geopolitical Influences

DOUBTS OVER WHETHER RALLY CAN ENDURE

China's Demand Impact

Dan Smith, managing director at Commodity Market Analytics, said markets were nervous about the global geopolitical situation after U.S. President Donald Trump threatened to impose tariffs on European allies opposed to his goal of gaining control of Greenland.

"I'm a bit dubious about this bounce," Smith said of copper after it rose as much as 1.6% in morning trade, adding that his algorithm was now giving him a sell signal. "It suggests any kind of strength will be short-lived."

The recent price rally has also dented demand in China, the world's biggest consumer of metals. The Yangshan copper premium, a gauge of Chinese appetite for copper imports, fell to $22 a ton, the lowest in almost 18 months.

"China macro looks pretty strong, but high copper prices tend to weaken demand if you're not careful," Smith said. China exported 96,000 tons of refined copper in December, down around one-third from November's bumper shipments but still more than five times higher than a year earlier.

Tin was the biggest gainer on the LME, adding 3.9% to $51,000 a ton as Indonesia cracks down on illegal mining, while nickel jumped 2.3% to $17,995. 

Aluminium rose 0.5% to $3,124, zinc gained 0.2% to $3,178.50 and lead lost 0.2% to $2,024.

(Reporting by Tom Daly; additional reporting by Lewis Jackson and Dylan Duan; editing by Paul Simao and Barbara Lewis)