LME base metals rise on Chinas $855bn spending plan

Thursday, Nov 13, 2008

COPPER jumped 11 per cent, pulling all industrial metals higher, on hopes that China's $855 billion economic stimulus plan will boost demand.

Nickel rallied more than 13 per cent, while zinc climbed around 7 per cent, but they later trimmed their gains, along with copper, as analysts said the move may not be enough to change the short-term bearish demand outlook for metals.

The world's top consumer of copper, China, on Sunday approved 4 trillion yuan ($855 billion) in new government spending between now and 2010.

London Metal Exchange copper MCU3 rallied as high as $US4171.75 a tonne, up 11 per cent but closed at $US3875 per tonne after trimming some gains, still up $US120 from Friday's close of $US3755 a tonne.

""It's good for copper,"" said Justin Lennon, analyst at Mitsui Bussan Commodities in New York.

""China is the biggest consumer of copper, no doubt, it's going to be a boost but I don't think the underlying issues have changed,"" he said, referring to the bearish outlook for metals due to weaker consumption in the face of a global slowdown.

Prices for copper have slumped more than 50 per cent from a record high of $US8940 in July amid slowing demand.

Inventories of the metal, used in construction and power, rose 6,050 tonnes to 260,850 tonnes, the highest since March 2004. Copper stocks have jumped almost 23,000 tonnes so far in November.

""While such an injection of cash is certainty constructive, we are sceptical about the ‘staying power’ of this move on metal prices, and doubt it will be enough to propel the complex to a higher trading range,"" said MF Global in a note.

China's stimulus plan and a pledge by the G20 group, representing 90 per cent of the world's economy, to take all necessary measures to get financial markets back on their feet lifted all industrial metals as did the weaker US dollar.

A weaker US currency makes dollar-priced metals cheaper for holders of other currencies.

Nickel jumped 13 per cent helped by short-covering as investors who had bet on lower prices bought back their positions.

""We have seen that over the past couple of weeks where the gains from short covering have been really quite substantial and that is a reflection of how large a short position has been established on nickel,"" said Barclays Capital analyst Gayle Berry.

The volatility in nickel prices is likely to continue over the next few months, she added.

Source: The Australian