Copper, base metals rebound but still vulnerable
Saturday, 18 October 2014
LONDON, Oct 17 (Reuters): Industrial metals rebounded on Friday, taking a pause after heavy losses this week, but analysts cautioned that markets were still on edge and vulnerable to deeper losses.
Copper was the weakest metal, bouncing slightly after hitting six-month lows on concern about a surge of mine supply swamping the market.
The rise in other metals was stronger, along with other global financial markets, following signs of strength in the U.S. economy and reassuring words from U.S. and European policymakers.
Copper is widely regarded as having some of the weakest fundamentals among base metals as a wave of fresh supply from new and expanded mines works its way onto markets.
"The demand environment doesn't look good, and everyone knows in copper there's a lot of mine supply coming," said Colin Hamilton, head of commodities research at Macquarie in London.
Highlighting worries about more supply was a 17.5 per cent jump in weekly copper inventories in warehouses monitored by the Shanghai Futures Exchange.
"That was a big build of stocks in Shanghai today and you can see copper underperforming," Hamilton said.
Three-month copper on the London Metal Exchange fell to a session low of $6,530 a tonne, its cheapest since April 15, before recovering. It failed to trade in official open outcry activity and was last bid up 0.4 per cent at $6,578.
The most-traded December copper contract on the Shanghai Futures Exchange closed 2 per cent down at 46,750 yuan ($7,632) a tonne.
BNP Paribas estimated that China's net buildup of unreported copper stocks from 2009-2013 might have been greater than 1.5 million tonnes, much of which may be sitting outside bonded warehouses and strategic state reserves.
"We expect pressure to remain more to the downside, until deep into 2015. Copper would be highly exposed were the world economy to deteriorate sharply." The bank expects copper prices to average at $6,500 in 2015, compared with $6,890 a tonne this year.
The metals rebounded after a robust labour report and an improvement in manufacturing data in the United States calmed turbulence in global markets, but analysts and traders said it was too early to say a bottom has been touched.