Copper prices rallied nearly 6 percent on Friday but analysts say the recovery will be short-lived and that global recession, falling demand and rising inventories will keep a lid on prices. Aluminium, used in transport and packaging, fell to its lowest since October 2002 as stocks in London Metal Exchange warehouses rose to a record.
However, industrial metals recovered in afternoon trade as funds bought back short positions - bets on lower prices - ahead of a Chinese Lunar New Year holiday next week, with nickel jumping 9 percent to its highest since January 12. "It looks like a short-covering rally," said Michael Widmer, analyst at BNP Paribas.
"There may be some hope for a better performance ... But things don't look good, there is a continuous stream of metal moving into LME warehouses." Worries about demand from China, the world's largest consumer, have plagued the market for some months now and the gloom has deepened as growth in the world's fourth largest economy has slowed significantly.
Three-month copper on the LME fell to $3,055 a tonne, the lowest price since January 2 before rising to $3,270 a tonne. It ended at $3,251 from $3,090 at the close on Thursday. Copper inventories in LME warehouses rose 2,175 tonnes to a five-year high of 424,625 tonnes, while stocks in warehouses monitored by the Shanghai Futures Exchange rose 4 percent on the week ended Thursday.
Prices for copper, which is used in power and construction, have slumped about 65 percent since reaching a record high of $8,940 a tonne last July. Aluminium dipped to $1,316.5 a tonne, the lowest price since October 2002. It closed at $1,342 from $1,330 at the close on Thursday. Aluminium inventories in LME warehouses increased 16,625 tonnes to a fresh record high of almost 2.7 million tonnes.
"While producers such as Alcoa have already responded with production cuts, these are evidently not yet sufficient to balance out the drop in demand, especially from the car industry," Commerzbank said in a note. China's primary aluminium production fell 18 percent in December from a year earlier, but rose 4.1 percent in 2008, provisional figures from the International Aluminium Institute (IAI) showed.
Nickel jumped 9 percent to $12,100 a tonne. The steel making ingredient ended at $12,100 a tonne from $11,000. Tin gained 7.5 percent to $12,250 a tonne, the highest since January 7. It closed at $12,100 from $11,395 on Thursday. Both lead and zinc rose more than 4 percent. Lead was last bid at $1,115 from $1,074 and zinc at $1,160 from $1,120 on Thursday.
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