Demand in China typically picks up in the second quarter ahead of the third quarter when construction activity rises. "Demand should pick up as we move into the second quarter and stocks are low. It could be quite an explosive mix," said Citi analyst Oliver Nugent.
"Copper stocks have not built nearly as much as would have been expected so far this winter, meaning a lower base from which to draw during the second quarter. Citi expects to see copper prices rise to $6,700 a tonne over the next three to six months.
Stocks of copper in London Metal Exchange warehouses stand at 139,500 tonnes, close to 10-year lows of 122,500 tonnes hit in early December last year. This is a fraction of global demand estimated at around 24 million tonnes. Nearly half of global consumption is accounted for by China which is expected to further stimulate the economy using monetary and fiscal policy tools.
A key indicator of future economic activity in China are new loans, which hit a record 3.23 trillion yuan ($481 billion) in January as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown. US President Donald Trump said on Tuesday talks with China in Washington were going well and suggested he was open to extending the deadline to complete negotiations.
Tariffs on $200 billion worth of Chinese imports are scheduled to rise to 25 percent from 10 percent by March 1 if there is no deal.
POSITIONS: Large holdings of LME copper stocks, cash and tom/next contracts have fuelled worries about short-term availability and boosted prices for nearby contracts. The premium for the cash over the three-month contract hit $58 a tonne on Monday, the highest since October. It now stands at $17 a tonne.
The premium for tom/next, which normally trades at a discount, hit $20 a tonne on Tuesday, its highest since May last year. It is now around $2 a tonne. PRICES: Aluminium traded down 0.1 percent at $1,855 a tonne, zinc traded 0.9 percent higher at $2,681, lead was bid up 1 percent at $2,033, tin traded up 0.3 percent at $21,225 and nickel was bid 0.8 percent higher at$12,775.