Copper prices rise on signs of global economy improving

Thursday, May 27, 2010

Copper prices rose in London and Shanghai on Thursday extending rallies from the previous session and tracking gains in equity futures played out against a backdrop of euro zone worries and positive U.S. data.

Sentiment earlier saw some pressure from a report that China might be reviewing its euro zone debt holdings.  But China's central bank denied a report as groundless that

it would review its holding of euro zone debt and said it remains committed to a long-standing goal of diversifying foreign exchange reserves.

"There are three headwinds facing commodities right now: Euro sovereign debt, China cooling measures -- there are still concerns about China's housing market -- and the last is the tax issue in Australia," ANZ's senior commodities analyst Mark Pervan said.

 "That creates uncertainty and the market doesn't like risk right now."

Three-month copper on the London Metal Exchange CMCU3 rose 1.4 percent, or $92, to $6,871 by 0703 GMT.

Supporting sentiment were positive U.S. housing and durable goods data from the United States, and a less bleak assessment of the world economic outlook from the OECD.

The global economy is recovering faster than expected from recession with Asia leading the way, but is at risk from debts in developed countries and possible overheating in countries such as China, the OECD said on Wednesday.

In a twice-yearly report, the Paris-based organization for Economic Co-operation and Development raised its forecast for global growth to 4.6 percent in 2010 and 4.5 percent in 2011.

Last November it predicted growth of 3.4 percent this year and 3.7 percent in 2011, after a 0.9 percent contraction in 2009.

Benchmark third-month Shanghai copper SCFc3 rose 430 yuan to 55,320 yuan, having earlier dipped to 54,320 yuan.

 "All this week our initial reaction in metals was to what happened to the Dow and the euro. We came in today and everyone sold," a trader in Shanghai said.

"Physical business is good, spreads in Shanghai are tightening and the arbitrage is open, but none of that matters, markets are moving 'just because'."

The Dow Jones Industrial Average .DJI fell 0.7 percent on Wednesday, closing below 10,000 for the first time since early February, but the index's futures DJc1 rallied 1.5 percent to 10,097 on Thursday.