Copper rallies on weak dollar

New York/London: A depressed dollar, stronger tone in equities and reassuring economic data from Germany and the United States enabled copper to stage a recovery rally on Friday, but lingering concerns about economic prospects are expected to keep price volatility at a high.

"The market had corrected about 25.00 cents, and it was due for a little bounce," said Bill O'Neill, partner of Logic Advisors in Upper Saddle River, New Jersey.

Copper for July delivery on the New York Mercantile Exchange's Comex division recovered from a near three-week low overnight to close up 5.90 cents, or nearly 3 per cent, at $2.05 a pound.

Last week, the benchmark Comex contract surged to a six-month peak just below $2.25 a pound - a gain of about 60 per cent since the start of the year.

On the London Metal Exchange (LME), copper for three-month delivery closed up $128 at $4,470 a tonne, after sinking earlier to a session low of $4,270.

London copper has climbed about 40 per cent this year, as a recent rise in cancelled warrants - material earmarked for delivery - helped buoy sentiment.

But there is now talk the stock drawdowns could be ending. "We could be testing the $4,000 (Dh14,690) level on the perception that perhaps there'll be less buying coming out of China, especially from the government's SRB," said Robin Bhar, an analyst at Calyon.

On Thursday, cancelled warrants stood at 65,800 tonnes from 69,175 tonnes the day before. With copper LME stocks falling 10,925 tonnes to 429,550 tonnes, cancelled warrants represent 16 per cent of total LME inventories.

"On the bullish side, strong Chinese import data ... but on the bearish side, global macro sentiment has turned down a little bit. The result is that prices are confused for direction," said Gayle Berry, an analyst at Barclays Capital.

A jump in German corporate sentiment in April to its best level in five months kept pressure on the dollar for the fourth straight session versus the euro, making dollar-priced metals more attractive for non-US investors.

US economic reports gave an additional boost to sentiment, with March durable goods orders slipping by a less-than-expected 0.8 per cent and inventories of new homes for sale at the end of March plummet at a record pace.

Despite the upbeat figures, the overall economic mood remained dire.

"While some semblance of slight improvements here and there, all of the data in the US and also in Europe, and certainly in Japan is still recessionary," Logic Advisors' O'Neill said.

Indeed, Japan's output of rolled copper products fell a record 60 per cent from a year earlier in March.

Aluminum, used in transport and packaging, closed at $1,457 a tonne, up from $1,448. LME stocks jumped 15,175 tonnes to a new record of 3.69 million tonnes.

On Thursday, aluminum cancelled warrants were 58,300 tonnes compared with 62,250 the day before.

Steel-making ingredient nickel ended at $11,550 from $11,350, while zinc closed at $1,420 a tonne from $1,417.

On Thursday, zinc cancelled warrants were 30,975 tonnes compared with 27,750 the day before, with LME stocks now at 340,500 tonnes.

Battery material lead ended at $1,435 a tonne versus $1,460. Tin closed at a day's high of $12,600 - matching a near five-month high hit the day before.

Both tin and lead are in front-month backwardation, and both feature dominant long-position holders.

In lead, one entity has cash and stock positions accounting for over 90 per cent of available LME inventory, while in tin there were two dominant position holders in both the 40-50 per cent and 50-80 per cent categories.

Adding to lead's downside, LME stocks rose 8,075 tonnes to 71,725 tonnes - its highest level since mid-September.

"Over the past week or so, we've seen quite a significant turnaround in the inventory trend for lead," said Barclays' Berry. "We are now in the seasonally weakest period for lead consumption."