Base metals have soared to a sharply higher close on the London Metal Exchange (LME), buoyed by in part by short-covering following news of a further stimulus injection by the US Federal Reserve.
At the close of open outcry trading on Friday, LME three-month copper was up 3.8 per cent at $US8,380 a metric ton, having earlier hit its highest level since May 2 at $8,411/ton. Tin gained the most, rising by more than $US1,300/ton or 6.5 per cent to end the session at $US21,675/ton.
In a keenly awaited announcement on Thursday, the Fed said it would buy $US40 billion each month of mortgage-backed securities on an open-ended basis, in addition to its existing bond-purchasing program known as Operation Twist.
The Fed's policy setting arm also said it expected to keep short-term interest rates near zero until at least mid-2015, beyond its previous estimate of late 2014.
The news boosted prices for base metals, which are used widely in industry and manufacturing activities, since the move is expected to stimulate economic activity and therefore demand for base metals.
It also weakened the US dollar considerably against the euro, thereby increasing the appeal of dollar-denominated base metals among buyer that use other currencies.
"The catalyst for the recent rally in base metals was first remedial action in the euro zone, then boosted further by the Fed's action this week," said Credit Suisse metals analyst Tom Kendall.
A recent announcement from the Chinese government pledging a massive investment into Chinese infrastructure also supported base metal prices although both the Chinese stimulus and US stimulus measures may take a while to feed through into actual demand, analysts warned.
The base metal gains have also been partly attributed to a short-covering squeeze, rather than the addition of sizable fresh long positions, although these may be beginning to emerge, analysts said.
Furthermore, the generally thinner trading volumes for metals such as nickel, lead and tin, that posted the largest gains throughout the session, may be exacerbating price moves, some said.
Looking ahead, despite today's performances, some market watchers warn that the longer-term outlook for base metals remains unclear.
"In terms of current market positioning, base metals look likely to benefit most from better sentiment in the short term but, without fundamental support, liquidity driven rallies are likely to fade fast for most commodities," said Barclays analysts in a note Friday.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Thursday PM kerb
Copper 8380.0-8381.0 Up 305
Lead 2264.0-2265.0 Up 107
Zinc 2116.0-2116.5 Up 80.5
Aluminum 2200.0-2201.0 Up 99
Nickel 17775.0-17780.0 Up 1025
Tin 21675.0-21680.0 Up 1325
Aluminum Alloy 2110.0-2120.0 Up 135
Aluminum Alloy-NASAAC 2175.0-2185.0 Up 80