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Copper recovered from five-week lows on Monday, bouncing from initial declines as market focus shifted to improving fundamentals.
Benchmark copper CMCU3 on the London Metal Exchange (LME) was up 0.6% at $9,819 a metric ton by 1000 GMT, having earlier slipped to the lowest level since May 2 at $9,741 after speculators cut bets on higher prices.
Traders expect further buying on Tuesday when China returns from the Dragon Boat Festival holiday.
The sell-off had started on Friday after U.S. data showed strong jobs growth in May, suggesting that the U.S. Federal Reserve might not cut interest rates as soon as previously expected.
This prompted the U.S. currency to bounce, making dollar-priced metals more for expensive for holders of other currencies in a relationship used by funds to generate buy and sell signals from numerical models.
“Such an outsized reaction can only happen in the futures markets if traders square their positions based on some sort of automated trading,” said Julius Baer analyst Carsten Menke.
“The fundamental backdrop looks sound, but we need to see what happens whether this global manufacturing recovery everybody is expecting – based on PMIs – actually materialises.”
Surveys of purchasing managers in top consumer China show factory activity picking up, particularly at smaller companies.
However, worries about Chinese demand remain owing to rising inventories in warehouses monitored by the Shanghai Futures Exchange (ShFE) CU-STX-SGH. Copper stocks have reached four-year highs of 336,964 tons, compared with about 30,000 tons in January.
Also indicating weakness in the Chinese market is the Yangshan copper premium SMM-CUYP-CN, which reflects the country’s demand for copper imports. The figure has been at or below zero since May.
Traders were also awaiting loans and social financing data for clues on Chinese demand prospects.
In other metals, aluminium CMAL3 was down 0.6% at $2,563 a ton, zinc CMZN3 climbed 1.1% to $2,798, lead CMPB3 slipped 0.4% to $2,191, tin CMSN3 was up 0.8% at $31,695 and nickel CMNI3 gained 0.1% to $18,055.