Copper, used in power and construction, hit a high of $7,539.75 earlier on Monday, but is some way off the 16-month peak of $7,796 touched on January 7. "We can see investment money (and) speculative inflows," said Eugen Weinberg, an analyst at Commerzbank. He added that a cyclone threat in Australia was also supporting base industrial metal prices, as investors worried about mine and haulage disruption.
But with the Martin Luther King, Jr. Day holiday in the United States, analysts expect a relatively thin trading session, especially given the sparse economic calendar. Looking further ahead, investors are waiting for Chinese industrial output and trade data on Thursday. China is the world's largest metals consumer.
Metals markets are also awaiting a report on December consumer prices this week that is expected to show the sharpest gain in the index since February 2008, and which may prompt a new response from Chinese policy makers. China's central bank announced a surprise increase in bank cash reserve ratios last week, a move that reduces the amount of money available for lending, as part of an effort to tame inflation.
On the demand side, analysts have warned of price corrections because of the high levels of stocks in LME warehouses, which suggest fundamentals outside China remain weak. Copper stocks surprisingly eased 2,025 tonnes - falling for the first time since late October - but remained near 11-month highs above 500,000 tonnes.
"We have got to be careful because one set of data doesn't make a trend," said Robin Bhar, an analyst at Calyon. "People have greeted that with some amazement ... obviously we need to see that continue." The premium now of Shanghai copper over London is just over $100 - a level favourable to copper imports. Macquarie Bank said in a research note that they expect more copper to be delivered into China in the next two to three months, with imports staying at the 800kt-850kt level in the first quarter of 2010.
"However, we believe the incremental buying from this positive arbitrage ratio will be first supplied by the stock built up in bonded warehouses in China rather than taking material from the LME warehouses," the analysts said. There could be as much as 200,000 tonnes of copper stocks sitting in domestic bonded Chinese warehouses at the end of 2009, with some reduction in early 2010, Macquarie added.
Aluminium rose $22 to $2,328. LME stocks in the metal, used in transport and packaging, fell by 5,650 tonnes but remain near record highs above 4.5 million tonnes. Steel-making ingredient nickel traded at $18,685 from $18,600 while battery material lead was at $2,480 from $2,440. Zinc traded at $2,493 a tonne from $2,470 and tin traded at $18,040 from $18,100.