Copper hit a three-month high on Thursday following a fall in London Metal Exchange (LME) inventories, but broader economic worries limited gains, analysts said. European stock markets ended down, capping a move higher by industrial metals, while traders expected more volatile sessions to come in the absence of Chinese buyers owing to the Lunar New Year holiday.
Copper for delivery in three months on the LME ended the day at $7,550 per tonne, up from Wednesday's close of $7,330. Earlier, it hit an intraday high of $7,560 - the highest since November 7 after LME stocks data showed a hefty fall. The metal was seen fluctuating in wide ranges after touching a low of $7,265, down nearly 1 percent in early trading.
"When it dips, the bulls are back in buying and when it rallies the others sell ... With such divergent views in the market we are going to see this continue," analyst Daniel Hynes of Merrill Lynch said. He said the short-term move higher in copper was on the back of a drawdown in copper stocks in LME warehouses. Traders said copper, often seen as a good gauge of real economic activity, watched global equity markets for direction.
"The FTSE came down after the rate cut with the markets being disappointed - it forced copper lower," an LME floor trader said. Britain's leading share index, the FTSE 100, was down 2.6 percent at its close.
"Equities are weakening as markets anticipate European slowdown, but European central banks are preferring to squeeze inflation than underpin economic growth," analyst David Thurtell at BNP Paribas said.
The Bank of England cuts its key rate by quarter of a percentage point to 5.25 percent, while the European Central Bank left its rate untouched at 4.0 percent. Data released at 1330 GMT showed US jobless claims fell in the latest week, though the numbers failed to move metals.
Analysts have differing views on how much demand for metals will be affected by an economic downturn. "I think that is one of the few things most people would agree on - volatility will increase," Hynes said. Standard Bank said the rest of the week looked likely to remain turbulent, especially as liquidity becomes all the more patchy and significant price fluctuations are likely.
The Lunar New Year holidays in Asia have brought trading in China, Hong Kong, South Korea, Taiwan, Singapore, Malaysia and Indonesia to a halt. The markets reopen next week. A hefty fall in LME inventories lifted copper prices 2.8 percent in the previous session and on Thursday a 2,500-tonnes drop took the total to 169,500.
LME stocks are at the same level as at the start of November and they are down 16 percent from a recent peak on January 4. The stock drawdown pushed the market back into a $7.5 backwardation - extra money paid for cash metal over the three-months price. "When people see stocks coming out like that ... they might think that the market is going to tighten in the future and they borrow material to front-run that," an LME trader said.
In other metals nickel, a key ingredient in stainless steel, rose $350 to $26,700/26,800 per tonne. Three-months aluminium was up $39 at $2,681 per tonne. Tin rose to $16,850 from $16,775/16,800, lead was down $40 at $2,780 and zinc dropped $35 to $2,350.