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Inventory Tightness, Cooling Mideast Tensions Take LME Copper Higher; Zinc Near 2-Months High

9 Jan 2020 8:00 pm
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Mumbai (Commodities Control) – Copper prices scaled one-week highs on Thursday, supported by easing tensions in the Middle East, China confirming it would sign a preliminary trade deal with the United States next week and expectations of stronger Chinese demand.

Benchmark copper on the London Metal Exchange traded up 0.1% at $6,184 a tonne in official rings. Prices of the metal touched $6,213.50 earlier in the session.

"As we move into peak demand season from late in the first quarter and into the second quarter, we will see clear trends on the deficit in the copper market," said Deutsche Bank. "Inventories are still extremely low."

Copper stocks in London Metal Exchange registered warehouses at 135,800 are at their lowest since March last year and down nearly 60% since late August.

In warehouses monitored by the Shanghai Futures Exchange, copper inventories at around 141,000 are down nearly 50% since March 2019.

Even LME zinc upped 0.1% at $2,406.5, after earlier hitting a two-month high of $2,416. The premium for the cash over the three-month contract rose to $16 a tonne, the highest since early December. The rise has been fuelled by worries about LME stocks, which have fallen to 30-year lows around 50,000 tonnes, and large holdings of LME warrants and cash contracts.

Meanwhile, U.S. President Donald Trump stepped back from new military action against Iran after its retaliatory missile strikes on Iraqi bases housing U.S. troops caused no casualties.

As for the much awaited trade deal, China's Vice Premier Liu He, head of the country's negotiation team in Sino-U.S. trade talks, will sign a "Phase 1" deal in Washington next week. Liu will visit Washington on Jan. 13-15.

"Copper has been a proxy trade for current macro issues," said Bank of America Merrill Lynch analysts in a note. "A rapprochement between the U.S. and China could push the red metal higher. Lack of mine supply growth should increasingly support" prices.

On technical front, upside resistance is at $6,270, near the 8-month high hit in late December, and support kicks in at the 21-day moving average, currently at $6,170.

China's consumer inflation steadied, while factory-gate prices fell at a slower pace in December, giving Beijing room to stay the course on monetary easing as economic growth cools.

Faster credit expansion will be key to stabilising economic growth, which cooled to 6% in the third quarter of 2019, the slowest since the early 1990s.

Other base metals followed the footsteps of copper and zinc. While, aluminium was little changed at $1,799.5, lead gained 0.6% to $1,912, nickel added 1.0% to $14,190 and tin climbed 0.5% to $17,225.

(By Commodities Control Bureau +91-22-40015502)

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