Tue Feb 21, 2012 3:17pm EST
* Copper rallies over 3 pct, breaks 200-day moving average
* Market could rise to $3.9 per lb in short term – traders
* Concerns about Chinese demand remain
By Josephine Mason and Harpreet Bhal
NEW YORK/LONDON, Feb 21 (Reuters) – Copper prices rallied more than 3 percent on Tuesday, breaking through key
resistance and notching their largest daily gain since November, after Greece secured a rescue package from euro-zone finance ministers to avert an imminent default.
Breaching the 200-day moving average could help copper hold onto recent gains even amid continued concerns about Chinese demand and the battered euro-zone economy, traders said.
The red metal outperformed the precious metals and energy markets as well as the forex and equity markets, even after the Dow briefly topped 13,000 for the first time since May 2008.
Three-month copper on the London Metal Exchange (LME) ended at $8,449 a tonne, up more than 2 percent from Monday’s close of $8,235.50 and well above its 200-day moving average level of $8,399.05 per tonne.
The New York market built on momentum from Asia and Europe to end a six-day losing streak, as trading resumed following the long holiday weekend in the United States for President’s Day.
The key COMEX March contract notched up its largest daily percentage gain since the end of November to rise 12 cents
or 3.5 percent to settle at $3.8365 per lb. It hit an intraday high above $3.84 per lb just before 11:30a.m. (EST), piercing its 200-day moving average at $3.8327 per lb.
Prices are still shy of the five-month high of $3.9895 hit on Feb. 9, but are up some 12 percent year-to-date and prices
now stand a chance of continuing to rise before hitting the next resistance level around $3.9, predicted Frank McGhee, head metals trader at Integrated Brokerage Services LLC.
The May contract also breached its 200-day moving average at $3.7916 per lb to settle at $3.8665 per lb, up from $3.749 on Friday.
“The key now is to see if copper can stay above its 200 DMA line or if it is just a short-term fake out … For months, the 200 DMA line has served as resistance. The question now is, will the 200 DMA line become support?” said Adam Sarhan, CEO of Sarhan Capital.
In the immediate term, the market may take a breather after the run-up since the start of the year on the back of short
covering by hedge funds, according to traders who point to the rise in Comex speculative net long positions to their highest
levels since August and the surge in open interest to near record highs. [ID: nL2E8DHAW8]
While market participants say the buying has not been overdone, they will be watching the relative strength index
(RSI), which rose to 54 on Tuesday from 45 on Friday. An increase to above 70 would indicate an overbought market.
Traders are also nervous about the strength of underlying demand, particularly amid concerns about slackening demand in
China, the world’s largest copper consumer. “Our most recent interactions with investors suggest that confidence remains fragile with euro-zone debt issues still a key concern, while worries about the short-term slowdown in China turning into a hard landing have rapidly escalated,” said Wiktor Bielski, head of commodities research at VTB Capital.
China’s recent announcement of a cut in the amount of cash that banks must hold is expected to boost lending capacity by
more than $50 billion and may help spark domestic metals demand. But stocks in Shanghai warehouses last week hit their
highest levels in nearly a decade and analysts have warned that the country’s imports are likely to remain week until March even after the end of Lunar New Year holiday which traditionally marks a resumption of buying.
Tuesday’s rally was sparked by news of an agreement on the Greek 130 billion euro ($172 billion) bailout programme, which, while long expected, is expected to help the troubled nation meet repayment needs next month.
The relief may only be shortlived though as the bailout deal may be eclipsed by concerns about more uphill battles for Europe to fix its economic problems. “This does address one of the core concerns that the market has had about the macroeconomy for this year, so although it doesn’t mean that we’re out of the woods yet, it does go some
way in addressing one of the market’s core concerns,” said Gayle Berry, an analyst at Barclays Capital.
“These are markets that are still very much categorised by a lack of conviction. In the short term what we’re going to see is
more erratic trading unless we get a series of events or data points that help to allay some of the concerns regarding
economic growth.” In related news, the European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone’s longer-term future.
NO IMPACT FROM COLLAHUASI
On the supply side, news that the world’s No. 3 copper mine, Chile’s Collahuasi, halted all mining, plant and port operations
after a fatal accident on Monday had little effect on prices, traders said.
Operations are likely to start to normalize on Wednesday once authorities inspect the mine, a company source said.
Zinc ended at $2,028 from $1,982 at the close on
Monday, lead closed at $2,117 from $2,051 and aluminium ended at $2,255 from $2,179.
Tin ended at $24,190 from $23,525 at Monday’s close and nickel closed at $20,230 from $19,750.
Metal Prices at 1934 GMT
Metal Last Change Pct Move End 2011 Ytd Pct
COMEX Cu 383.00 12.20 +3.29 343.60 11.47
LME Alum 2254.00 75.00 +3.44 2020.00 11.58
LME Cu 8449.00 213.50 +2.59 7600.00 11.17
LME Lead 2117.00 66.00 +3.22 2035.00 4.03
LME Nickel 20225.00 575.00 +2.93 18710.00 8.10
LME Tin 24185.00 660.00 +2.81 19200.00 25.96
LME Zinc 2027.00 45.00 +2.27 1845.00 9.86
SHFE Alu 16180.00 45.00 +0.28 15845.00 2.11
SHFE Cu* 60050.00 710.00 +1.20 55360.00 8.47
SHFE Zin 15780.00 175.00 +1.12 14795.00 6.66
** Benchmark month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07