Industrial metals prices bounced on Friday in volatile trading after heavy losses in the previous session caused by a squeeze in credit markets. Metals futures and mining stocks rose in common with other assets after the US Federal Reserve cut one of its interest rates in an effort to calm rattled financial markets.
Copper futures at the London Metal Exchange, often considered a key gauge of the real economy, jumped almost 5 percent to $7,060 per tonne before ending the day's trade at $7,020, up $270 from Thursday's close.
"The Federal Reserve System of the United States has finally bowed to market pressure and announced a series of measures designed to calm turbulent markets," economist John Kemp at Sempra Metals said.
The Fed cut its primary discount rate by 50 basis points to 5.75 percent, saying tighter credit conditions and greater uncertainty had the potential to restrain economic growth. Markets responded to the move by rebounding from recent lows.
The motive behind the commodities sell-off which wiped more than 15 percent from the copper price since the start of August was the need to liquidate risky assets such as metals to raise cash, fund managers said, adding fundamentals haven't changed.
"It's a reflection of the extent to which funds have been exposed to the asset class," said John Payne, manager of the Resolution Hexam Global Resources Absolute Return fund. "The asset class has done well, therefore people are going to take profits, and particularly if you are de-leveraging, you have to sell what you can.
"If you look at demand for commodities, that has not changed," he said. Still, investors remained on edge after several days of losses, analysts said. "The disruption in the credit market is causing investors to question the strength of the real economy globally...and, of course, what that does to consumption growth," Daniel Brebner, executive director of commodity research at UBS, said.
Copper bore the brunt of the metals-wide sell-off on Thursday on fears that a worsening credit environment in the US would seep into world economies, slowing economic expansion and, with it, demand for raw materials. The price of copper at its Thursday low of $6,730 - its cheapest since March - was still well above this year's trough of $5,250 set in February.
Clearing house LCH. Clearnet, used by the LME, told Reuters it did not plan to change LME margins at the moment. "In the next week we'll see how it goes (the market) and if the volatility continues we might consider it," a spokesman said. The clearing house cut initial margins for copper, nickel and zinc at the end of July. Supporting prices was news Peruvian workers at Southern Copper's Cuajone mine have rejected the company's wage proposal.
Also supportive was BHP Billiton, which halted operations at its Olympic Dam smelter in Australia due to an electrical accident, and could not say when it would restart. Talks aimed at ending a three-week strike at Grupo Mexico's Cananea copper mine will begin on Monday, a company lawyer said,. Peru's Milpo said it had restarted operations at its Cerro Lindo mine after an earthquake cut off power supplies this week.
Tin was supported after the world's largest integrated tin miner, Indonesia's PT Timah Tbk, said it had halted sales until the price goes back above $15,000. Tin ended Friday's trade unchanged at $13,500. Aluminium rose $29 to $2,497 a tonne, nickel gained $900 to $26,000, lead rose $85 to $2,890 and zinc was up $80 at $3,060.
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