Copper up, supported by easing trade and Middle East tensions

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LONDON (Jan 9): 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 US$6,184 a tonne in official rings. Prices of the metal, used as a gauge of economic health, touched US$6,213.50 earlier in the session.

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 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 analyst Nicholas Snowdown. "Inventories are still extremely low."

TRADE: 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 ... The ongoing lack of mine supply growth should increasingly support" prices.   

INVENTORIES: 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.

TECHNICALS: Upside resistance is at US$6,270, near the 8-month high hit in late December, and support kicks in at the 21-day moving average, currently at US$6,170.

CHINA: 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.       

China accounts for half of global copper demand estimated at around 24 million tonnes this year. 

ZINC: The premium for the cash over the three-month contract rose to US$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.

Three-month zinc was up 0.1% at US$2,406.5, after earlier hitting a two-month high of US$2,416.

PRICES: Aluminium was little changed at US$1,799.5, lead gained 0.6% to US$1,912, nickel added 1.0% to US$14,190 and tin climbed 0.5% to US$17,225.