Copper scaled a seven-week peak in intraday trade on Monday — aided by top user China’s move to trim interest rates over the weekend to prop up a faltering economy — before clawing back some gains due to underlying concerns over fragile demand.
Three-month copper on the London Metal Exchange jumped to $5,960 a tonne, its highest since January 13, before easing to $5,913.50 by 1106 GMT, still up 0.3%. Copper prices recorded their largest monthly gain in more than two years on Friday. The May copper contract on the Shanghai Futures Exchange hit 43,280 yuan ($6,899) a tonne, the maximum since January 12, before losing a tad to close up 1.2% at 43,200 yuan.
Still, UBS has raised its 12-month copper forecast to $6,700 a tonne from $5,500, citing increasing challenges to mine supply.
The People’s Bank of China announced on Saturday a cut in the benchmark lending and deposit rates by a quarter percentage point. Data released on Sunday showed China’s factory gauge data for February signaled contraction for a second month, which, analysts said, would necessitate push to manufacturing and drive up raw material requirements.
However, metal prices retreated as investors felt the unexpected action by the Chinese authorities might have been stoked by concerns that the economy had been in a far worse shape than known to the external world.
Economists now expect China to announce a growth target of around 7% for 2015, compared with 7.5%last year, which was in any case the lowest growth rate for the country since 1990, according to Bloomberg.
“The benchmark rate cut… suggests to us that growth momentum may have slowed significantly in February,” Nomura’s Yang Zhao said in a note. Although the HSBC China Manufacturing Purchasing Managers’ Index rose to a seven-month high to 50.7 in February from 49.7 in the previous month, the country’s export orders contracted for the first time since April 2014 last month.
Among other metals, zinc, aluminium pared initial gains of about 1% on the LME. Lead, however, recovered from a four-year low hit on Friday caused by ample supplies.
Gold at two-week high
Gold rose to its loftiest in nearly two weeks on Monday, as the rate cut in China boosted demand for the precious metal, despite the dollar hovering around a 11-year high. Spot gold touched $1,223.20 an ounce in earlier trade, its highest since February 17, and was up 0.3% at$1,216.65 by 1034 GMT.
The precious metal lost 5.5% in February, its biggest monthly loss since September, on speculations that the US could raise the interest rate early. However, despite the drop in February, the metal is still up almost 3% in 2015. Gold premiums at the Shanghai Gold Exchange stayed firm at around $4-$5 an ounce over the global spot benchmark on Monday.