LONDON/NEW YORK (Reuters) - Copper jumped to a one-month high on Tuesday on optimism that the European Central Bank is drawing up a strategy to tackle the euro zone debt crisis, although some investors expressed wariness about further gains.
The euro rallied to a seven-week high versus the dollar as talk of ECB action to ease Spanish and Italian borrowing costs resurfaced, even though the central bank had tried to quash such speculation on Monday. <FRX/>
A strong euro makes dollar-priced copper cheaper for European investors.
Further gains in copper are likely to be limited by the euro zone debt crisis, slower growth in top metal consumer China and a stuttering recovery in the United States, the world’s largest economy, some analysts said.
“You’ve got hopes about the ECB again ... but the general trend hasn’t changed much from July. We’re still fairly range-bound,” Citi analyst David Wilson said. “Markets are nervous about taking outright positions in either direction.”
Three-month copper on the London Metal Exchange jumped 2.1 percent to close at $7,610 per tonne, having touched a session peak of $7,632, the highest since July 20. The metal breached the range of $7,300 to $7,600 it had held over the past month.
In New York, COMEX copper for September delivery also hit a one-month high, rising as much as 2.8 percent to $3.4665 per lb on hefty volume. It eased off those highs to settle at $3.453, up 2.4 percent.
Trading volume was huge. Some 81,425 lots changed hands, double the 30-day average and well above the 250-day average of 50,419 lots, according to Thomson Reuters data. The flurry of activity is all the more significant as it comes at the height of the Northern Hemisphere summer holiday.
The reasons behind Tuesday’s jump in COMEX volume were not immediately clear. Other recent data, however, has pointed to growing liquidity in the New York contract, eating into its larger London rival’s market share.
Open interest, considered a measure of liquidity in a market, has held firm around 154,000 lots on COMEX copper, while that on the larger London contract sank to 2007 lows around 229,884 lots on Monday.
Measured in tonnage, the liquidity in the LME’s second-most-active contract represents 5.7 million tonnes of refined metal, dwarfing COMEX’s equivalent of 1.7 million tonnes.
Even so, the data suggests August will build on COMEX’s already strong performance so far this year. Its average volume rose more than 50 percent year-on-year in the first seven months of 2012, while LME copper volume grew by 16 percent.
Markets took heart from a report in British newspaper The Daily Telegraph, which said it could confirm weekend reports that ECB experts were examining plans effectively to cap Spanish and Italian yields. The bank has denied such speculation.
In China, risk assets including copper received a modest boost after local media reported the city of Chongqing was planning to invest $236 billion in seven major industries.
Import data from the world’s top consumer, meanwhile, showed a marginal rise for July, with shipments of refined copper into China at 254,339 tonnes versus 250,097 tonnes in June.
“For now, with no clear trading direction, LME copper will be stuck within a range of $7,200-$7,800. But downside risks will increase over the longer term as Chinese consumer demand remains weak with no sign of improvement in global economics,” said Andy Du, derivatives director at Orient Futures.
Chief Executive Ivan Glasenberg of Glencore (GLEN.L) saw potential for stronger demand in China toward the year-end.
“I think we’ve got to watch China carefully to see what type of stimulus they will or won’t put into place... personally I believe you will see more infrastructure spending in the second half,” he told a conference call after the commodity trade house released interim results.
In other LME metals, packaging material aluminum gained 1.6 percent to close at $1,867 a tonne, having touched a session and one-week high of $1,878.75. Last week it hit $1,827.25, its weakest point since November 2009.
Although the latest aluminum production figures point to falling daily output in China, physical traders said the market still feels sluggish.
In industry news, an alumina refinery 33 percent owned by Aluminum Corp of China Ltd (2600.HK)(601600.SS) and located in the southwestern region of Guangxi is being temporarily shut on environmental grounds, company sources said, further curbing local supply of alumina.
Soldering metal tin finished 2.2 percent stronger at $18,950 a tonne, its highest in a month.
Latest LME stocks data showed nearly half the exchange-registered material is still “cancelled”, set to leave warehouses. Also indicating tightness in nearby supply, cash tin traded at a premium of $1 a tonne over the benchmark three-month price.
Zinc and lead came off highs after market balance data from the International Lead and Zinc Study Group showed the global zinc market was in surplus by 152,000 tonnes in the first six months of the year, and lead was in surplus by 48,000 tonnes.
Zinc, used in galvanizing, ended up 0.8 percent at $1,810 a tonne, off a high of $1,838.25; battery material lead edged up 0.3 percent to close at $1,914, off a three-week high of $1,944.75; while stainless-steel ingredient nickel gained 1.8 percent to $15,825.
Editing by Dale Hudson, Alison Birrane and James Jukwey