Copper rebounds

Copper rebounded from earlier losses on Wednesday as a sell-off triggered by concerns about the impact of credit problems in China was considered overdone, but further gains were capped by lingering worries about the outlook for demand. Three-month copper on the London Metal Exchange (LME) ended at $6,505 a tonne, up 0.5 percent from Tuesday's close.
It hit a session high of $6,544.75 in afternoon trade, after falling to its lowest in 44 months at $6,376.25 earlier in the day. Three-month LME copper has shed more than 11 percent this year, including a 2.6 percent drop on Tuesday. Prices bounced off lows on bargain hunting from European industrial consumers but analysts say prices may slide further before heavy buying kicks in from consumers in China, which accounts for 40 percent of global demand.
"The sell-off was overdone, and things have calmed down a bit," said Andrey Kryuchenkov, analyst at VTB Capital. One European trader said there was extensive hedging by consumers in Europe due to the weak LME prices combined with a strong euro. "Every consumer I know is hedging like hell right now. It's just too attractive to pass up," he said. The copper market was rattled by a bond default by a Chinese solar panel company last week, which ignited worries about risk in the country's credit market.
A good deal of copper held in China's bonded zones is tied up in financing deals where importers sell copper on domestic markets to raise credit for more lucrative investments elsewhere, and there are fears these deals may unravel. "As you get on the one hand a freeing up of the official channels through the deregulation of the market, you also get a drying up and clamping down on those unofficial shadow banking channels," said Nic Brown, head of commodities research at French bank Natixis.
Copper inventories in Shanghai bonded warehouses are estimated to have more than doubled over the past five or six months to 750,000-800,000 tonnes from 350,000, Brown added. But recent selling appeared to be driven more by sentiment than a reflection of the actual market in China, traders said. Demand is weaker than usual but still reasonable, while the strongest quarter for consumption is about to get underway. "People are afraid of a knock-on effect to commodities - it's a reflection of how bad sentiment towards China is," said Sijin Cheng, an analyst at Barclays in Singapore. In other metals, aluminium ended 1.6 percent higher at $1,778.50 a tonne, nickel was up 0.6 percent at $15,650 and tin was up 0.4 percent at $22,950. Lead slipped 0.6 percent to $2,038 and zinc closed 0.6 percent lower at $1,988.