A broad range of financial markets, including metals, crude oil, and equities, all had a strong run after the European Central Bank (ECB) promised last week to buy bonds to ease pressure on Spain and Italy, albeit under strict conditions that are yet to be spelled out.
Prospects of further bond purchases by the U.S. Federal Reserve added to Tuesday's optimistic tone. Boston Fed Bank President Eric Rosengren said in interviews with the New York Times and CNBC that the Fed should start buying Treasury and mortgage-backed securities and continue doing so until the economy was back to full strength.
While Rosengren is not currently a voting member of the Federal Open Market Committee, metals investors were encouraged that the Fed might launch a third round of government bond buying, also known as quantitative easing, or QE3.
"I think this is some of the Fed talk," Matthew Zeman, head of trading with Kingsview Financial in Chicago, said of copper's firmer tone. "You've got people continuing to queue up the QE3 trade in expectation of an announcement next month from Bernanke."
COMEX copper for September delivery climbed 5.15 cents or 1.5 percent to settle at $3.4405 per lb, after dealing between $3.37 and $3.4490, its priciest level since July 31.
"If there is a lack of action from the ECB, I think it will derail this move in copper. They need to come out and do something big now or they are going to lose a lot of credibility and that's going to take a lot of risk appetite away from market participants," Zeman said.
Volumes stood at a hefty 69,967 lots in late New York trade, nearly two-thirds above the 30-day average, according to preliminary Thomson Reuters data.
On the London Metal Exchange, three-month copper rose $85 to finish at $7,580 a metric ton (1.1023 tons), after touching a session high of $7,612, which marked its highest level in a week.
Still, prices in both markets are about 13 percent below the year's high hit in February.
"We are sitting here and waiting for the eurozone to deliver something," said Andrey Kryuchenkov, analyst at VTB Capital.
"Markets are up on speculation that the ECB will make a move soon but copper has been range-bound since the June sell-off and it is unlikely to move much until you see the Chinese depleting their domestic warehouses. Chinese demand is still anemic at the moment."
Inventories of copper in China have risen dramatically since the end of last year as the pace of growth there started to slow down, raising worries about the metal's consumption prospects.
China's copper stocks could start to come down in the early autumn, when demand usually has a seasonal increase and as Chinese authorities likely implement more measures to boost the economy, according to VTB Capital.
SLUGGISH DEMAND
Two sources at smelters said China's copper smelters are planning to increase exports of refined copper following recent tax adjustments that have reduced their export costs.
The move could shift thousands of metric tons of refined copper back to London Metal Exchange warehouses and pressure global prices.
"This means the tax cost to smelters exporting cathode is now much lower, so the price differential between the LME and the Shanghai Futures Exchange will not have to be as large to incentivize exports," Barclays said in a note.
"This may be a limiting factor on the scale of the LME backwardation that could re-emerge later in the year."
Reflecting still sluggish demand from end users in China, premiums for physical metal have slipped, Citi noted in a report. "Chinese copper premia have ... come off, now at $65 a metric tons having reached a high of $85 in early July," it said.
China's economy is facing downward pressure from shrinking external demand and a domestic property market downturn.
A string of economic data from China later this week should give some more hints on the state of the world's second-largest economy.
Apart from three-month LME nickel, which shed $55 to end at $15,750 a metric ton, all of the other metals finished firm.
Tin surged $445 to close at $18,270 a metric ton, after news that Indonesia's PT Timah (TINS.JK) has stopped selling the metal on the spot market because of low market prices, cutting shipments this month from the world's largest tin exporter.
(Additional reporting by Melanie Burton in Singapoer; editing by Anthony Barker, David Gregorio and Bob Burgdorfer)
Source: http://in.reuters.com/article/2012/08/07/markets-grains-idINL4E8J716M20120807
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