Hopes that President-elect Donald Trump will boost infrastructure spending also pushed prices higher.

Metal prices rallied Monday, despite a strengthening dollar, as a pledge by China’s president to support a free-trade area in the Asia-Pacific boosted optimism about Chinese demand.

Typically, a strong dollar weighs on metal prices because it makes sales to China and other emerging markets more expensive. But positive sentiment around China along with hopes that U.S. President-elect Donald Trump will boost infrastructure spending pushed prices higher.

Three-month copper futures on the London Metal Exchange rose 2.5% to $5,560 a ton, zinc gained 2.1% to $2,596.5 a ton and nickel was up 3.2% to $11,165 a ton.

“Normally a higher dollar value is not good for commodity prices, but this time around it is different because dollar strength is on account of hopes of U.S. economy getting better,” says Helen Lau, analyst with Argonaut Research. “Now that is good for commodities consumption.”

Hopes of freer trade flows and the prospect of more imports by China, the world’s largest consumer of metals, buoyed investor sentiment, Ms. Lau said.

In a speech to the Asia-Pacific Economic Cooperation forum in Lima, Peru, on Saturday, Chinese President Xi Jinping said his government would support a Free Trade Area of the Asia-Pacific and was pushing forward with the Regional Comprehensive Economic Partnership, a trade pact that includes 16 countries.

China, the world’s second-biggest economy after the U.S., could take on a greater role in global trade if Mr. Trump’s administration pulls out of U.S.-led accords, analysts say. In the next five years, China will import $8 trillion of goods and invest $750 billion abroad, Mr. Xi said.

In the lead-up to the U.S. presidential election, Mr. Trump vowed to review trade pacts and impose across-the-board tariffs on imports from China, a large exporter of metals to the U.S.

“Of course, I think there is a certain element of uncertainty going forward, especially as we are not sure about the policies of the U.S. president-elect,” said Ms. Lau.

Metal prices have zigzagged over the past two to three weeks. Most base metal prices, including copper, zinc, aluminium, nickel and lead, tumbled when it became clear that Mr Trump was headed to a surprise victory because traders were unclear about his policy positions. Those price moves later reversed course.

Analysts expect metal prices to be volatile in the near term. If the U.S. Federal Reserve raises rates next month, the rally in metals prices would likely be capped by dollar strength.

Mr. Trump’s election coincides with a global metals glut. In recent months, Chinese metal producers have added to the oversupply by stepping up output, which has partly been supported by a pickup in China’s housing market and infrastructure spending.

Chinese cities have recently taken measures to curb speculation in the property market.

“The Chinese construction sector is likely to experience headwinds because of restrictions that are now being imposed, though overall the investment climate [in the nation] appears to be far more stable,” said Eugen Weinberg, head of commodities research at Commerzbank.

Source: WSJ