Shanghai copper futures steadied on Tuesday, after trading limit down the previous day, but sentiment was fragile and investors were waiting for confirmation that prices had stopped falling. The most active April contract was up 180 yuan at 50,220 yuan a tonne at the close.
"I have a cautiously bullish outlook on copper in Shanghai and London. The metal could rise again if trading confirms a stable bottom around $5,300," Chen Ting at Dayue Futures in Zhejiang said. Copper for delivery in three months on the London Metal Exchange was up $35 at $5,375 a tonne by 0708 GMT.
"There is a lot of apprehension in the market in the wake of Red Kite. We saw a sharp fall last week, but prices have stabilised," Man Financial analyst Edward Meir said. "The market may be starting to think that the selling is over, but investors are waiting for confirmation."
Copper and zinc plunged on Friday after a report in the Wall Street Journal that hedge fund Red Kite had lost 20 percent in the first days of January and wanted to extend the redemption notice period for investors to 45 days from 15.
Red Kite declined to comment on the report of losses, but confirmed it had sent investors a note seeking a longer notice period for those who wanted to withdraw their money. "Everyone is an expert in a bull market. Now it is fragmenting, it will be testing time," ABN Amro global commodities analyst Nick Moore said.
"The evidence of the copper market moving to surplus has been apparent for a couple of months. All eyes now are on the fundamentals." Copper stocks in LME-monitored warehouses fell 1,225 tonnes on Monday to 214,025 tonnes, but have doubled in the past 12 months and are over eight times greater than their July 2005 low.
"Price progression will be a lot harder to find than in the past couple years when a number funds were swept ever higher, but perhaps should now rename themselves Icarus," ABN's Moore added. Shanghai spot copper prices were down 150 yuan at between 52,900 yuan and 53,100 yuan.
The most traded April Shanghai aluminium futures contract rose to 19,620 yuan from 19,550 yuan. LME aluminium was up $1 at $2,713, with the cash to three months spread at a wide $118 backwardation.
In a note, Standard Bank, London said the steep backwardation had attracted around 50,000 tonnes of metal into warehouses since the start of the year, less than many had expected. "The light metal still remains well supported by news of a dominant position holder and we see this continuing until at least March, with the lower-than-expected stock inflows seen as a sign that the market may be tighter than first thought." Stocks were 748,875 tonnes.
Nickel was up $105 at $35,800 a tonne, steadying after dropping 4.6 percent on Monday. Meir said news that China was considering reducing or removing export rebates on some steel products had spooked the market.
While stainless steel products have not been specifically mentioned, there was concern that stainless steel could be included in a possible raft of rebate cuts. "Chinese steelmakers are flooding the market. If you remove those rebates that will dry up and may spill into stainless, which means less nickel consumption," Meir said.
Nickel stocks in LME warehouses were unchanged at 3,222 tonnes, their lowest since 1991, while the premium for cash metal was $3,450/3,550 a tonne above the benchmark future. Of the total stocks, 912 tonnes are earmarked for delivery, leaving 2,310 tonnes to support the 1.4 million tonne-per-year market.