Copper rebounded nearly 1 percent on bargain hunting on Friday, a day after China's decision to raise interest rates spurred a broad-based sell-off in the commodities sector.
Some analysts say on Thursday's sell-off in base metals was anticipated as the market had been heavily overbought in the past several weeks and before next week's long holidays in China and Japan as well as an expected margins increase in London.
London Metal Exchange copper for delivery in three months was up $60 at $7,115/$7,135 a tonne. "The degree of reaction we've seen so far is an indication to me this is more of an excuse to take profits particularly ahead of the two big Asian holidays in Japan and China," said Peter Richardson, chief metals economist at Deutsche Bank.
On Thursday, copper prices lost $245, or more than 3 percent, to end at $7,055 after China, the world's top consumer of the red metal, raised interest rates for the first time in 18 months to cool its fast-expanding economy.
However, analysts said Federal Reserve Chairman Ben Banana's hint of a possible end of US rate increases partly offset the impact by the Chinese interest rate news. Copper, used in wiring, tubing and coins, reached a record $7,385 on Wednesday, gaining as much as 68 percent this year and up more than five-fold from cyclical lows in 2001, as a result of strong demand and tight supply as well as increased fund buying.
On Monday, traders said LCH Clarinet, which clears LME-traded contracts, was expected to announce large hikes due to growing volatility when it changes initial margin calls next week. On the supply side, labour disputes at mines in Mexico and elsewhere continued lending support.
A group of Mexican unions are planning nation-wide stoppages on Friday in an escalating face-off with the government which last week led to the killing of two workers in a botched bid to break a strike.
More than 200 workers at the Loam's Bayous copper mine in northern Chile voted on Thursday to go on strike after rejecting a contract offer from Canada's Falconbridge Ltd, a union spokesperson told Reuters.
The most active Shanghai July contract closed down 2,040 yuan from the previous close at 67,680 yuan ($8,439) a tonne, after dipping 5.5 percent to 65,880 yuan. "I don't think the interest rate hike changes the whole situation around.
Shanghai's July aluminium contract plunged by its 4 percent daily trading limit to 20,790 yuan before ending the session at 21,090 yuan a tonne. Traders said Shanghai aluminium futures were under pressure contract as Beijing was expected to take further tough measures.
The Chinese government will accelerate plans to restructure its energy-intensive aluminium industry and restrict new aluminium and alumna plants, in a move to reduce the country's fast-growing investment in fixed assets.
LME aluminium was at $2,755/$2,765 a tonne versus the London close of $2,747. On Wednesday, the metal hit it's highest in nearly 18 years of $2,845 a tonne. In other LME metals, zinc was at $3,150/$3,200 a tonne after falling $160 to close at $3,200 on Thursday.
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