Aluminium rose on Thursday as investors bet that material tied up in warehouse backlogs would remain off the market due to extended legal wrangling. Copper dipped after a bank suspended some metals financing due to a Chinese port investigation, prompting some concerns that the probe may lead to liquidation of finance deals.
The London Metal Exchange (LME) said on Wednesday it decided to appeal against a court ruling that halted a reform aimed at cutting backlogs at its global warehouse network. The longest queues are in aluminium of up to two years. The appeal hearing will not be held until late July and it was unclear how soon a ruling would be given, delaying a resolution that could result in outflows of aluminium from warehouses back to the market.
"People saw the headline and saw the appeal is not tomorrow, so how long will this (process) take? That's why the market has held up," said analyst Andrey Kryuchenkov at VTB Capital. Commerzbank said in a note: "If both parties continue to battle it out in court, we believe it will take many months before we see any noticeable changes to the current warehousing practices."
Three-month aluminium on the LME was the biggest gainer, closing 0.8 percent higher at $1,850 a tonne. Copper dipped amid uncertainty about the impact of an investigation into metal financing at Qingdao port, China's third-largest, which has disrupted some shipments. Global trading houses and banks are scrambling to check on their exposure to a probe into metal financing at the port, as concern grows that a crackdown on commodity financing could hit trade in the world's top metal buyer.
Standard Chartered has suspended new metal financing to some customers in China, three sources familiar with the matter said. "The worry... is that companies who have secured their metal are now going to dump it, but we do not think that this will be the case. Neither do we think that the Chinese authorities are going to clamp down on this type of financing," said Ed Meir, an analyst at INTL FCStone.
He added that the authorities would still need to allow the metal sector continued access to liquidity. "What we think will happen is that financing deals will become more expensive to conduct in that there will be additional levels of regulation and insurance in order to make sure that lending parties hold clean title." Three-month LME copper slipped 0.1 percent to close at $6,780 a tonne, after falling 1.2 percent in the previous session to its lowest in three weeks at $6,760.
The uncertainty was also reflected in premiums for bonded stock in Shanghai, which dropped $10 to $95-$115, after falling $5 on Wednesday, according to Shanghai price provider Shmet. (www.shmet.com) The LME losses were modest due to recent robust US economic data, with latest data showing a firm underlying trend in the US labour market, and comments from China suggesting it had warded off a slowdown in growth.
"Demand globally is looking pretty good," Crane said. "Obviously in China growth is lower than it was before but there is still growth. The problem with commodities is that they are all oversupplied, but that won't last forever." China has stepped up efforts to stop quarterly economic growth falling towards 7 percent and thinks it has been successful for now after preliminary signs that a rapid slowdown has been arrested, sources involved in policy discussions said.
Other metals were mixed after the ECB cut interest rates to record lows, imposing negative rates on its overnight depositors to cajole banks into lending more and to fight off the risk of Japan-like deflation. Zinc closed 0.4 percent higher at $2,088, lead closed at $2,108.50, up 0.3 percent, tin closed up 0.1 percent at $23,245 and nickel was up 0.1 percent at $19,050.
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