Tags: copper | rally | ecb | bond

Copper Price Jumps 1.7% on Optimism about ECB Action

Wednesday, 05 Sep 2012 03:55 PM

Copper jumped on Wednesday to its priciest in more than a month, on reports that the European Central Bank will unveil a new government bond-buying program to control the eurozone debt crisis.

As the euro rallied versus the dollar, copper surged and closed above its 100-day moving average for the first time since May after reports suggested the ECB may buy unlimited amounts of short-term government debt to ease the region's financial crisis.

The ECB said in August it would start buying Spanish and Italian government bonds again to ease pressure on those countries' borrowing costs, but only if they sought help from the euro zone's rescue fund and met strict conditions

"This (news) is further supporting the markets' earlier hopes that there may be a ray of light on the horizon for Europe," said Peter Buchanan, commodities analyst and senior economist at CIBC in Toronto.

COMEX copper for December delivery rose 6.00 cents or 1.7 percent to settle at $3.5290 per lb, after dealing between $3.4465 and $3.5340, its highest since July 20.

Copper closed above its 100-day moving average for the first time since early May and pushed up near the top of a month's long trading range, roughly between $3.30 and $3.55.

"The close above the $3.50-$3.51 area is indeed a positive for the bull camp. Follow-through from today's move would confirm a breakout from the market's range," said Ralph Preston, futures analyst with HeritageWestFutures.com in San Diego, California.

COMEX volumes neared 64,000 lots in late New York business, more than 40 percent above the 30-day norm, according to preliminary Thomson Reuters data.

At the London Metal Exchange (LME), three-month copper climbed $105 to close at $7,740 a tonne, just shy of an intra-day peak at $7,750 -- another high dating back to July 20.

"The markets have been pumped up on the belief that the ECB will announce at its meeting tomorrow that it will restart its bond buying program to address the spike in borrowing cost in some of the weaker euro zone countries," Societe Generale analyst Robin Bhar said.

The ECB could start to buy Portuguese bonds quickly after revealing its anti-crisis plan on Thursday.

"Expectations are very high regarding not only the ECB, but also the Fed and perhaps to a lesser extent, the People's Bank of China," CIBC's Buchanan said.

Stimulus measures or monetary easing intended to relaunch economic growth would strongly benefit industrial metals demand growth, which has recently slowed down together with industrial activity in most regions.

A survey published on Wednesday showed the eurozone is likely to have slipped back into recession in the current quarter as the bloc's private sector suffered a seventh month of contraction as new orders dwindled.

 

CHINA

Investors also hoped China, which accounts for about 40 percent of global copper demand, would attack slowing growth with aggressive stimulus measures.

So far there have been moderate measures, including announcements this week about infrastructure spending, notably from the Ministry of Railroads.

 

A forecast deficit in copper supply this year however was supporting the metal price.

"Things are cooling down in China but we're still expecting demand growth of 5 percent for copper, in part due to the roll-out of electricity projects. We are expecting copper to outperform other metals over the next six months," said Matt Fusarelli, an analyst at Australia-based consultancy AME Group.

A trader in China's Guangzhou province said anticipation of further easing by Beijing had been supporting domestic prices. However, the trader said he saw copper prices falling as strong U.S. equities attracted investors and Chinese industrial demand growth moderated.

© 2017 Thomson/Reuters. All rights reserved.

   
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2012-55-05
Wednesday, 05 Sep 2012 03:55 PM
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