Copper hits resistance at eight-month peak

LONDON — Copper rose on Wednesday as expectations of strong demand growth from top consumer China boosted sentiment, but the rally was capped by strong technical resistance at eight-month highs.

Benchmark copper on the London Metal Exchange (LME) closed up 0.2% at $6,506.50 a ton after an earlier high of $6,531. Prices of the metal used widely in power and construction hit their highest since July on Monday at $6,540.

Copper’s recent gains have been fueled by Chinese banks making the most new loans on record in January, totaling 3.23 trillion yuan ($484 billion), as policy makers try to jump-start sluggish investment and prevent a sharper slowdown.

“We turned more positive after the credit data for January,” said ICBC Standard Bank analyst Marcus Garvey, adding that seasonal influences meant the January data “need to be taken with a pinch of salt.”

“But if you look at the composition of the numbers, they indicate potential for a less aggressive push on deleveraging.”

China’s local governments issued 418 billion yuan in debt in January, up sharply from 63.8 billion yuan in December.

“There isn’t usually much, if any, government bond issuance in January, but this year there is,” ICBC Standard Bank’s Mr. Garvey said. “We’re not going to see a huge round of infrastructure stimulus this year, but it could at least potentially match the rhetoric heard at the end of last year.”

Copper’s rally stalled on Monday at $6,540, a Fibonacci resistance level. Traders say that level may take several attempts to breach and will need a trigger, which could be some sort of resolution to the US-China trade dispute.

Copper inventories in LMEregistered warehouses, near 130,000 tons, are close to their lowest in 10 years.

Worries about a tight LME market are exacerbated by cancelled warrants, metal earmarked for delivery, at more than 80% of the total.

One company holding large amounts of warrants has also contributed to a premium of $39.50 a ton for the cash contract over the three-month contract, from a discount around $20 a ton earlier in February.

Stocks of zinc under LME warrant at 67,825 tons are at their lowest since 2007, while cancelled warrants at more than 22% are significant.

As with copper, large holdings of zinc warrants have contributed to a tight market and created a premium of around $30.50 a ton for the cash over the three-month contract from a near $10 a ton discount earlier this month.

Three-month zinc ended up 0.2% at $2,745 a ton. Aluminum gained 0.6% to $1,922 a ton; lead added 2.1% to $2,136.50; tin slipped 0.3% to $21,530; and nickel rose 0.7% to $13,055. —