September 6, 2018 / 11:21 AM / 2 months ago

METALS-Short-covering by funds fuels copper rally

* Trade war fears to cap prices of industrial metals

* Aluminium supported by higher raw material costs (Updates with closing prices)

By Pratima Desai

LONDON, Sept 6 (Reuters) - Copper prices rose on Thursday due to funds covering short positions and recent dollar weakness, but significant gains are unlikely due to an escalating trade dispute between the United States and China.

Benchmark copper on the London Metal Exchange ended up 0.9 percent at $5,927.5 a tonne in official rings.

That is a recovery from the 14-month low of $5,773 a tonne hit on August 15 for the metal used in the power and construction industries, but prices are still down about 20 percent since a 4-1/2 year high of $7,348 hit in June.

“Copper tested the lows again and couldn’t get through. There’s been a lot of short-covering, profit-taking and the dollar is lower, which helps,” a copper trader said.

“But there is a lot of nervousness about the U.S.-China trade war, that will keep the bulls at bay.”

DOLLAR: A lower U.S. currency makes dollar-denominated metals cheaper for holders of other currencies, which could boost demand. This relationship is used by funds to generate buy and sell signals from numerical models.

TRADE: U.S. President Donald Trump has said he is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on $200 billion more on Chinese imports as soon as a public comment period on the plan ends.

The world’s two largest economies have already applied tariffs to $50 billion of each other’s goods in a tit-for-tat trade war. Talks aimed at easing tensions ended last week without a major breakthrough.

DEMAND: China is the world’s largest copper consumer, accounting for nearly half of global demand estimated at around 24 million tonnes this year. The U.S. accounts for about eight percent of global demand.

China is also the world’s largest consumer of other industrial metals such as aluminium, zinc, lead and nickel.

PERFORMANCE: “Base metals were among the worst performers in the commodity space as growing U.S.-China trade tensions along with signs of slowing growth in China took a toll,” said INTL FCStone analyst Edward Meir.

ALUMINIUM: Prices of the metal used in transport and packaging are to an extent supported by worries about supplies due U.S. sanctions on Russian aluminium producer Rusal and higher input costs.

ALUMINA: “Higher cost aluminium smelters have been under pressure as prices of the key raw materials alumina and thermal coal have rallied - alumina and power account for 80 percent of operating costs,” BoA Merrill Lynch analysts said in a note.

PRICES: Aluminium was down 1.3 percent at $2,040 a tonne, zinc gained 0.9 percent to $2,441, lead slipped 0.7 percent to $2,035, tin gained 0.1 percent to $18,850 and nickel was little changed at $12,445.

Reporting by Pratima Desai; editing by Alexander Smith, David Evans, William Maclean

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