US copper futures settled up over 2 percent on Friday as speculators playing the short side of the market scrambled to cover their bearish bets after prices failed to extend their overnight losses, analysts said.
Copper for December delivery ended up 8.05 cents, or 2.6 percent, to $3.1615 a lb on the New York Mercantile Exchange's Comex division, near the upper end of its $3.0280-$3.1760 session range. The $3.0280 trough marked the lowest level for the contract since March 29.
"We're not seeing much price action when we make new lows," said David Rinehimer, director of Citi Futures Perspective in New York. "At this point, I don't see a lot of downside because of the stock situation," he continued. "Exchange stocks are still historically tight, and the price action would tend to reflect that.
We're still in a supply deficit situation and at some point in time, China is going to need more copper." In its latest monthly report, the International Copper Study Group (ICSG) reported the copper market was 258,000 tonnes in deficit from January to August, compared with a surplus of 38,000 tonnes in the same year-ago period.
Copper prices were in rally mode on Wednesday after a massive 7.7 magnitude earthquake struck Chile's mineral-rich northern region. The news ignited a panicked wave of short covering and fresh long exposure, boosting prices as much as 6.4 percent on the day its single largest daily percentage gain since July 6, 2006.
But, with reports of only minimal damage to mines in the area, prices came off as investors refocused their attention to slowing US economic growth, rising inventory levels and moderating Chinese demand. Copper, an industrial metal with strong applications in the housing and manufacturing industries, shrugged off economic data that showed US industrial production unexpectedly fall in October.
Output at factories, mines and utilities fell 0.5 percent last month, the biggest decline since a matching drop in January, the Federal Reserve report said on Friday. "It was a broad-based drop in manufacturing activity," said Michael Moran, chief economist at Daiwa Securities America in New York.
"If you look at the past several months, we're down on balance in the manufacturing sector so we're seeing some soft numbers in this area of the economy." Comex copper stock levels were down 273 short tons at 18,675 short tons on Thursday.