Copper climbed to its highest level in nearly five weeks on Tuesday, buoyed by economic stimulus optimism and an annual portfolio rebalancing by major commodity index funds, but the rally was expected to be short-lived as demand concerns remain.
The Dow Jones AIG recalculates the weightings for the individual commodities in its index yearly and is set to raise the weighting for copper traded on the New York Mercantile Exchange's COMEX division.
Copper for March delivery soared 12.40 cents, or 8.5 per cent, to settle at $1.5830 a lb on the New York Mercantile Exchange's COMEX division, its loftiest level on a closing basis since Dec 2.
The rebalancing takes place from Jan 9 to 15.
The reweighting of the S&P GSCI will occur from Jan 8 to 14 and will be based on closing prices on Jan 7.
"The index-related buying may go on for another 1 1/2 weeks," said analyst Michael Widmer at BNP Paribas.
He said the covering of short positions - bets on lower prices - exacerbated the move higher for many of the metals.
Three-month copper on the London Metal Exchange rose as much as 7.2 per cent to $3,420 a tonne, the highest since Dec 4, before closing at $3,390 a tonne, up $200 since Monday.
Matthew Zeman, head of trading with LaSalle Futures Group in Chicago, believed the industrial metals complex was riding an extended wave of economic optimism tied to the planned US stimulus package.
US President-elect Barack Obama is proposing that about 40 per cent of an economic stimulus package worth up to $775 billion be in the form of tax breaks.
In other metals, lead and tin were boosted by short-covering, with lead rising to the highest since Nov 27 at $1,185, up 5.8 per cent before ending at $1,178 from Monday's close at $1,120.
Tin rose as high as $12,300 a tonne, up 7 per cent from Monday's $11,500, and was last bid at $12,000.
Fundamentally the outlook for most metals remained grim and the premiums, indicating demand for physical metal, were flat to lower across the complex relative to December, said Widmer.
"Demand is not looking good," he said.
As a result of lower demand for copper metal, there is less buying of copper concentrates from China and smelter closures.
The previously very tight copper concentrate market has eased and smelting fees or treatment and refining charges (TC/RCs) are seen rising.
Mitsubishi Materials Corp said it won a roughly 70 per cent hike in copper processing fees from Freeport-McMoran Copper & Gold.
"The smelters are cutting back and we are seeing capacity relative to availability of concentrates has fallen so TC/RCs are popping up a bit," analyst Leon Westgate at Standard Bank said.
Copper prices fell more than 50 per cent in 2008 due to weakening global demand and rising inventories. On Tuesday, stocks in LME warehouses rose 1,450 tonnes to 343,500, the highest level since February 2004.
"Global industrial production appears to be declining at a 10-15 per cent rate, and GDP in many of the major economies is contracting at a pace of over 3 per cent," a Barclays Capital report said.
Aluminium hit an intraday high of $1,612 - the highest since Dec 4 - before closing at $1,604 a tonne from Monday's $1,548 even as inventories continued to climb.
Aluminium stocks rose 11,875 tonnes to 2.35 million tonnes, the highest in over 14 years.
Nickel rose as high as $13,555 a tonne, up 5.5 per cent from Monday's $12,850 and was last trading at $13,250.
Zinc was at $1,319 from $1,300. It earlier hit $1,335 a tonne, the highest price since Oct. 15.
