Copper recovered on Friday as consumers were attracted by lower prices and mining firms' shares traded higher on M&A talk, but the market was seen vulnerable due to demand worries and rising inventories.
European stocks gained ground with FTSEurofirst 300 index of top European shares rising 1.5 percent while mining firms like BHP Billiton, Rio Tinto jumped 5-8 percent. There was market talk of Chinese bidding interest in India-focused miner Vedanta and talk that Xstrata was weighing a bid for Anglo American. Xstrata's shares climbed 5.2 percent.
Copper for delivery in three months on the London Metal Exchange rose to $6,700 per tonne, up $135 or 2 percent from Thursday. "Some buying finally crept into the market on Thursday and this seems to be continuing today," LME ring dealers MF Global said in a research note.
Base metals have steadied after a month of losses as the flow of bearish US economic news halted briefly for the Thanksgiving Holiday. However, credit market losses and slowing growth are expected to keep metals under pressure.
Worries about the health of the US economy have sent copper prices to an eight-month low of $6,430 per tonne this week, when the metal, used extensively in construction and wiring, lost around 7 percent.
The US economy could slow a little bit more than what most people were expecting and that really will reduce demand for commodities," said Ashok Shah, chief investment officer at fund manager London & Capital. Stocks in LME warehouses rose another 925 tonnes to 186,425 tonnes, equalling almost four days of global consumption and nearly double the levels seen in mid-July.
"We believe this largely reflects the recent declines in global equity markets, which have historically been problematic for industrial metals," a Deutsche Bank report said.
"In the short-term we see the potential for further price weakness in copper, lead and zinc prices in particular," Barclays Capital said, revising its forecasts for the two latter metals. The investment bank forecasts cash lead to trade at an average of $2,400, falling to $2,200 in the second quarter.
Three-months lead was at $2,935 a tonne against $2,835 and zinc was also higher at $2,280, up $60. Zinc prices have nearly halved this year as the market is looking for a big rise in concentrate availability next year.
Barclays forecast cash zinc to average $2,850 in the first quarter 2008 and $2,950 in the second quarter. Aluminium was down $5 at $2,495 a tonne, nickel firmed by $300 to $29,100, while tin gained $480 to $16,680.
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