Copper slipped on Tuesday from record highs the previous session after China hiked benchmark interest rates, raising concerns of slower demand in the world's top consumer of base metals. Three-month copper on the London Metal Exchange fell to a low of $9,880 a tonne, but clawed back losses and was last bid at $10,059 as the dollar fell.
It closed at $10,045 a tonne on Monday, off the record high $10,160 it hit earlier that day. Copper, used in power and construction, has hit successive records since the start of February as expectations of supply constraints attract fund buying. It fell on Tuesday partly because China raised interest rates for the second time in just over six weeks to bring high inflation under control, a move seen as curbing demand for raw materials in its booming economy.
Some analysts said the fall had been a knee-jerk reaction. "I think a long-term impact on commodity prices is unlikely," said Commerzbank commodities analyst Carsten Fritsch. "I do not expect Chinese rates to rise to a level which would cause a collapse in economic growth. The rate rise seems to be an expression of economic strength in that growth should be brought to a sustained level and over-heating avoided."
Asian markets will resume normal trade on Wednesday, following week-long Lunar New Year holidays, which traders said should galvanise near-term direction. A broadly weaker dollar also helped lift base metals. A softer dollar makes metals cheaper for holders of other currencies. Tin retreated from record highs of $31,650 on Tuesday to close at $31,400, compared with a $31,200 bid on Monday.
Traders said the latest trigger was news from Indonesia's state-owned PT Timah, the world's largest integrated tin miner, that refined tin production fell 10 percent last year. Headline copper inventories fell by 1,500 tonnes, the most recent LME data showed, interrupting the loose uptrend in place since mid December. Reflecting moribund physical demand, the ratio of stocks to cancelled warrants - the metal tagged for removal from warehouses - has fallen to near 3 percent, the lowest levels since April 2010.
"Given the poor physical market, and the latest rate increase, (Chinese traders) may therefore be much more willing to sell copper than had been previously expected," Standard Bank said in a note. "While the rate rise has understandably grabbed the headlines, it is perhaps the Chinese CPI data next week... that has the potential to cause the most upheaval...If inflation does surge, China may well need to embark on much more aggressive tightening measures over the coming weeks and months." China inflation data for January is due on February 15. Zinc closed at $2,511 a tonne, versus Monday's close of $2,508 a tonne, while nickel was $28,390 from $28,300. Lead used in the battery sector, closed at $2,569 a tonne from $2,580 a tonne, while aluminium finished at $2,565 from $2,548.
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