Copper descends

Copper drifted lower on Wednesday as fears of a looming recession in the United States persisted despite an aggressive rate cut by the US Federal Reserve. Copper for three-month delivery on the London Metal Exchange ended the day at $6,870 a tonne, down $150 from its close on Tuesday, when it rallied 5 percent move from a day-low of $6,675.
The US Federal Reserve cut its interest rates by 75 basis points - the biggest cut in more than 23 years - in a bid to prevent the economy from sliding into recession. The move gave brief relief to stock markets and metals, helping them reverse early losses. However, traders and analysts said the move had not convinced markets that the worst was over.
"Markets cheered up as a first reaction to the Fed's rate cut," analyst Eugen Weinberg at Commerzbank in Germany said. "But many experts are still expecting further rate cuts next week (and) now people think something must be wrong with the system." "The Fed's move implies that the problems in the system are much worse than we expected," he said.
Wall Street expects the Fed to ease benchmark interest rates again next week at its scheduled policy meeting. A Reuters poll taken shortly after the Fed's inter-meeting rate cut showed 17 of 19 primary dealers polled forecast the Fed would cut benchmark rates at the Federal Open Market Committee meeting on January 29-30, with 14 expecting a half-point reduction.
"If they're cutting the interest rates by 75 basis points then it means the economy is in serious trouble and the outlook is very gloomy," a trader on the floor of the LME said.
Copper has been supported for several years by heavy use in China, the world's biggest consumer of the metal, but few believe China would be immune to problems in the Western world. "We remain positive about China's metals consumption ahead of the Lunar New Year regardless of the US rate cut, but demand later this year will be influenced by the slowdown in the US and the rest of the world," Standard Chartered bank said in a report.
Copper hit a two-month high of $7,450 per tonne in early January as fresh investment money poured into metals amid commodity indices rebalancing. Despite recent losses the price is still 4 percent up since the start of the year.
Industrial metals have been focusing on movements in global financial markets in recent weeks rather than on the supply and demand balance, dealers said.
"Fundamentals really had little to do with any of (the) moves. Instead, the metals again looked to technical signals, the rest of the complex and the wider global markets for direction," Standard Bank said in a research note. European stocks fell to close at their lowest in 1-1/2 years as relief faded, and investors again worried about recession.
LME zinc fell $95 to $2,210 after gaining more than 3 percent in the previous session. Rising stocks of the metal in LME and Shanghai warehouses combined with uncertainty about Chinese tax policies on zinc exports are weighing on sentiment.
Lead eased $65 to $2,505, aluminium shed $12 to $2,415, while nickel was down $595 to $26,905 and tin was untraded but quoted at $16,550/16,600, up $350.