Copper recovered losses on Tuesday from a one-week low, mirroring a rise in equities on improved risk appetite, but small gains were capped by demand concerns, while aluminium hit a 2-1/2 year high. Three-month copper on the London Metal Exchange closed at $9,590 a tonne from $9,535 at the close on Monday.
Earlier it touched a weekly low of $9,429.50 per tonne. Energy intensive aluminium hit its loftiest levels since September 2008 above $2,650 a tonne, underpinned by unrest across oil producing nations which has buoyed oil costs. "The VIX is lower again....US stocks are up so we are just bouncing back up again," said analyst Andrey Kryuchenkov of VTB Capital, referring to the Chicago volatility index, a gauge of market uncertainty.
US stocks rose on Tuesday, erasing initial declines as investors moved into sectors that lost ground after Japan's earthquake as the quarter draws to a close. Earlier, a surprise announcement by Italy's UBI Banca of a 1 billion euro ($1.4 billion) capital hike cut risk appetite, weighing on European stocks on speculation that other lenders could be heading down the same road.
Global macro concerns have resurfaced and along with expected interest rate rises, are weighing on the outlook for industrial metals, said analyst Stephen Briggs of BNP Paribas. "The eurozone problems are rearing their head again. There's uncertainty and at the same time a sense that interest rates are on their way up, globally... the end of Q.E. (quantitative easing) looks like it's on its way, China is tightening up, all these things are not great for risk appetite," he said.
The European Banking Authority is soon to publish the definition of core Tier 1 capital to be used in the current round of bank stress tests as well as the pass mark for the banks involved, a regulatory source told Reuters. Aluminium hit a new 2-1/2 year peak at $2,656. "It is the only metal that is produced in any quantity in the MENA region. Secondly although Japan doesn't mean anything for ally production per say...the whole nuclear story in Japan points towards rising energy costs world-wide, and aluminium is most exposed to that of all of the base metals," he said.
For aluminium, power accounts for about 35 percent of total cash costs, said Briggs. Oil prices turned positive on Tuesday as Libyan lead Muammar Qadhafi's troops halted a rebel advance, raising doubts among investors over how quickly the conflict in OPEC member Libya could be resolved.
Inventories of copper at the London Metal Exchange were down by 400 tonnes to 439,500 tonnes, the latest data showed, however inventories have climbed over 25 percent since mid-December. Tin, untraded in rings, was last bid at $31,550 from a last bid at $31,500 on Monday, while zinc closed at $2,375 from $2,340. Battery material lead ended at $2,685 from $2,628, and aluminium finished at $2,648 from a last bid at $2,615. Nickel closed at $26,600 from $26,220.
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