Copper steady, economic concerns jostle with China demand hopes

  • LME copper stocks 30 below levels seen last August
  • Zinc stocks down nearly 80% since August

London: Copper prices held steady on Monday, bolstered by expectations of seasonally strong Chinese demand in the second quarter and low stocks, while concerns about a global economic slowdown due to trade tensions capped gains.

Benchmark copper on the London Metal Exchange (LME) was up 0.3% at $6,453 a tonne at 1055 GMT. Prices of the metal used widely in power and construction have traded in a $200 range since the middle of February.

"The second quarter is normally the strongest in terms of physical activity, stocks are low and supply tightness is evident in metals like copper," said Societe Generale analyst Robin Bhar.

"Our concerns would be the macro overlay, slowing global growth and the unresolved US-China trade dispute."

China: China accounts for around half of global demand for industrial metals, which increases in the April to June period due to restocking ahead of the rising construction activity in the second quarter.

Trade: Investor sentiment on trade has see-sawed on rumblings coming out of the ongoing negotiations between the world's two biggest economies, which have both slapped tit-for-tat tariffs on each other.

"The uncertainty over US-China trade could be decisive for industrial metals in the short-term. Any disappointment could be a key headwind for the sector," ANZ analysts said in a note.

"We see renewed supply issues in some of the metals, copper and zinc, which could widen the market deficit. This leaves little room for replenishing depleted inventories."

Stocks: Copper inventories in LME approved warehouses at 183,825 tonnes are up from below 112,000 last Tuesday, but they are still more than 30% below the levels seen last August.

Higher stocks have seen the premium for the cash over the three-month copper contract shrink to $15 a tonne from $70 a tonne early in March.

Zinc: Stocks of zinc under LME warrant down nearly 80% to below 60,000 tonnes since August have also created a large premium for the cash over the three-month contract. The premium was last at $50 a tonne.

In contrast stocks in warehouses monitored by the Shanghai Futures Exchange have climbed above 124,000 tonnes from around 20,000 tonnes at the end of last year.

That combined with 80,000 tonnes of zinc stocks in bonded warehouses in Shanghai, according to analysts, take the total in China to above 200,000 tonnes.

Dollar: A lower US currency, which makes dollar-priced metals cheaper for holders of other currencies and expectations of dovish comments from the US Federal Reserve on Wednesday after its two-day meeting have boosted sentiment.

Prices: Aluminium rose 0.2% to $1,900 a tonne, zinc was down 0.1% at $2,788 a tonne, lead slipped 0.5% to $2,052 a tonne, tin added 0.1% to $21,105 a tonne and nickel gained 0.2% to $12,955 a tonne.