Shanghai copper steadied on Thursday after dropping by its daily limit on Wednesday, shrugging off tighter monetary policy in China and instead focusing on gains in London and prospects of a US interest rate cut. The April copper contract, the most active on the Shanghai Futures Exchange, was up 70 yuan from Wednesday's close, at 59,450 yuan ($8,221) a tonne.
After the market closed on Wednesday, China's central bank announced it would raise the bank reserve ratio by half a percentage point to a record high of 15 percent. That followed a 5.5 percentage-point jump over 10 raises last year.
"The market yet again is ignoring China's latest reserve requirement hike. China's excessive liquidity did not dry up after previous increases, and there is little reason to expect anything different," said analyst Wang Zheng at Fubao Metals.
"Instead, market participants are much more interested in what is going on in the United States. People are looking forwards to the Fed's decision." But doubts about the strength of the US economy have been reinforced this week, casting a shadow over all types of assets, especially equities, and that fear has spread into commodities in the past few days.
Nonetheless, copper is up 6 percent from the start of the year and most other LME markets are also slightly higher, with the exception of zinc which is down 5 percent. Tin was also a touch weaker. By contrast, the Dow Jones Industrial average has lost around 6 percent this year.
"It's still not a bad time to be in base metals. We've not had a collapse, and even though the sentiment is that the golden era is over, prices are still strong," a Hong Kong dealer said. "The way I look at it is that people have become more realistic." Relatively benign US consumer price inflation for December and flat industrial production numbers gave the US Federal Reserve room for an aggressive rate cut when it meets later this month, with markets pricing in a 60 percent chance of a 50 basis point cut and a 40 percent chance of an even greater reduction.
Markets are now awaiting Federal Reserve Chairman Ben Bernanke's testimony on Thursday on the outlook for the US economy before the House Budget Committee. Copper for delivery in three months on the London Metal Exchange was up $60 at $7,050, having lost 2.4 percent in the previous session. "Economic sentiment remains downcast as the mass sell-off across the commodity asset class continued," brokerage Triland Metals said in a note.