Base metals surged, with copper rallying to an almost three-year high, as investors ignored risk-off sentiment triggered by a North Korean missile test to focus on a weaker dollar and outlook for improved Chinese demand.
Copper advanced as much as 2.4% as trading resumed on the London Metal Exchange after a holiday on Monday. All other five main metals on the bourse climbed, with nickel rising as much as 3.1% to the highest since November, as the dollar extended a slump to make commodities cheaper for buyers using other currencies.
Metals have soared over the past 12 months as investors reappraised the outlook for consumption in China. The rally has been buttressed by a weaker dollar, with a gauge of the US currency on Tuesday reaching lowest since early 2015. On Monday, when the LME was shut, copper closed in New York at the highest since October 2014, after earlier hitting a four-year high in Shanghai.
“The weaker dollar is the underlying factor in this rally,” Steve Hardcastle, an analyst at Sucden Financial, said by phone from London. Prices may also be supported if investors pull money from stock markets amid concerns about equity valuations and geopolitical risks and buy metals instead, he said.
The LME Index of six primary metals capped a seventh weekly gain last week to post the longest winning run since 2006. The gauge is set to rise on Tuesday even after North Korea fired a missile across Japan, boosting demand for gold and hurting Asian stocks.
Copper for three-month delivery was up 2.3% at $6,816.50 a tonne on the LME yesterday. Lead and nickel rose more than 2%. Zinc and aluminium rose more than 1%. Tin rose 0.7%.
While copper has rallied – with Comex futures now above $3 a pound – there’s scepticism from some that the advance will last for long. “Copper above 300 cents a pound is overvalued and unsustainable,” Barclays Plc analyst Dane Davis said in a note received yesterday. Still, supportive near-term fundamentals, including disruptions in Zambia, and favourable import conditions into China, make an immediate sharp reversion unlikely, according to Davis. Copper’s rally this month has helped the red metal to challenge aluminium position as the best-performing base metal this year. Both metals are up more than 23% on the LME.
China, the world’s largest aluminium producer is tackling excess supply by ordering plant closures and looks set to make good on its pledges as the government pushes for cleaner skies, according to Wood Mackenzie.