SINGAPORE (Reuters) - Copper climbed on Friday, buttressed by returning confidence in the euro after the European Central Bank's chief reinforced a commitment to the single currency, while focus shifted to a key U.S. economic indicator later in the session.
Three-month copper on the London Metal Exchange traded at $7,543 a metric ton by 03.20 a.m. EDT, up 0.98 percent and adding to small gains seen in the prior session.
Copper hit a one-month low of $7,344.25 a metric ton on Wednesday and was on track to close the month of July down more than 2 percent.
The most-traded November copper contract on the Shanghai Futures Exchange rose 1.07 percent to close at 54,770 yuan ($8,500) a metric ton.
"(ECB chief Mario) Draghi's comments were supportive, the market looking for more stimulus is supportive, and the dollar is looking weak," said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.
"If we get decisive steps by the ECB about how they are going to support the euro, we'll start to get a reversal in the money that flowed out, and that, along with the recovery story, will support base metals," he added.
The euro steadied in Asian trading on Friday after rallying on Draghi's vow to hold the euro zone together, as investors prepared for U.S. second-quarter gross domestic product data later in the session.
A softer dollar makes commodities cheaper for holders of other currencies.
Still, the open interest in the LME copper contract has dropped to its lowest level in nearly five years, reflecting a profound lack of conviction about copper's near term price direction. The latest LME data shows open interest at 234,104 lots, the smallest volume since August 2007.
On aluminum, RBC Capital said in a note that price-induced shutdowns by aluminum producers such as Bosnia's Aluminij Mostar could erode a market surplus forecast for this year, potentially paving the way for a price recovery.
"The analyst community is still working on the numbers, but (such) closures could be enough to seriously erode the previously expected surplus," it said.
"Add that to the already tight physical market owing to load out queues at LME warehouses and you have a recipe for a decent short-covering rally," it said in a note.
Bosnia's top exporter, aluminum smelter Aluminij Mostar, will close 12.5 percent of its smelting capacity due to lower metal prices and higher power costs, and could cut more in September.
The roughly 45 million metric ton aluminum market is seen in a 500,0000 surplus this year, according to a Reuters poll earlier this month.
Aluminum prices at $1,891.50 are not far from 2-year lows of $1,832.25 reached in late June.
