REBEKAH CURTIS

Reuters

March 16, 2009 at 7:02 AM EDT

LONDON — Copper rose 1.6 per cent on Monday, as another fall in inventories helped boost the outlook for demand and a rally in equities lifted sentiment.

Copper for three-month delivery on the London Metal Exchange (LME) rose to $3,722 (U.S.) a tonne at 1031 GMT from $3,665 a tonne on Friday.

Stocks of copper dropped by 2,775 tonnes to 494,850, extending a recent trend of declines. Cancelled warrants – material earmarked for delivery – stood at 26,750 tonnes down from 29,825 on Friday.

“It appears that the Chinese are consuming copper...There does seem to be some demand that's soaking up the stocks,” Marc Elliott, an analyst at Fairfax, said.

“(But) I'm still a bit cautious whether this is real and sustainable,” he added.

Copper stocks have dropped more than 50,000 tonnes since late February. Traders and analysts said the momentum from falling inventories could be short-lived as they believed most of the inflows to China had been stockpiled by the country's state reserve body while prices were relatively low.

“(Sentiment is) mildly positive but with an underlying skepticism as to whether the inventory withdrawals will be sustained,” commodity markets analyst Kevin Norrish at Barclays said.

China's imports of unwrought copper, including anode, refined metal and copper alloy, surged 79.3 per cent on the year to 283,461 tonnes in February, bringing the imports for the first two months to 485,283 tonnes, up 53.5 per cent from a year earlier.

China's State Reserve Bureau has contracted as much as 80 per cent of its 300,000 tonnes of planned copper purchases from the international market, industry sources have said.

A rally in equities also boosted sentiment for industrial metals. European shares jumped for a fifth straight session, with financials boosted by further assurances over the health of the U.S. banking sector.

Still, several analysts were doubtful of a possible recovery in consumption any time soon.

“Demand has not yet picked up. We expect base metal prices will bottom out in the second half of this year before a possible slight rebound, and will continue to rise next year,” said analyst Judy Zhu at Standard Chartered.

The U.S. Federal Reserve Chairman Ben Bernanke said in a taped interview on Sunday that the U.S. recession could last most of the year.

Investors will look out for macroeconomic data to find out more clues about the health of the global economy. After data showing a rise in the Eurozone inflation in February, the focus will be on U.S. industrial activity and capacity usage data due 1315 GMT.

Stocks of aluminum rose by 5,350 tonnes to a record near 3.4 million tonnes. LME aluminum edged higher to $1,353 a tonne from $1,347 a tonne.

As deepening recession slashed demand for the metal, term premiums for primary aluminum ingot shipments to Japan for April-June have been cut to a three-year low of $57-$58 a tonne at some key firms, traders said.

Among other industrial metals, Zinc was at $1,245 from $1,220 a tonne. Stocks of the metal, used to galvanize steel, fell by 1,025 tonnes.

Lead was at $1,270 from $1,249 while nickel traded at $9,730 from $9,600. Tin was at $10,460 from $10,475 a tonne.