Copper rose 2.5 percent on Friday, helped by a US plan to subsidise US mortgages, but further gains were capped by persistent worries about demand. The rise came after four days of falls on disappointment over China's imports and a cool response to US plans to save the banking sector and jumpstart the economy. "We are getting an end of the week bounce," David Wilson, an analyst at Societe Generale, said.
"Overall, the macro view is still for weaker demand." The Obama administration is hammering out a programme to subsidise US mortgages in a new front to fight the credit crisis, sources familiar with the plan told Reuters on Thursday. Three-month copper on the London Metal Exchange rose to a high of $3,496 a tonne but closed at $3,430 versus $3,410 at the close on Thursday.
Prices for the metal, used in construction and telecoms, jumped 12 percent last week on speculation of buying by China's State Reserves Bureau. Wilson said last week's rally was unjustified as the fundamentals were still poor. He said there needed to be further cuts by copper producers and noted stocks were still rising at a steady rate.
Copper inventories in LME warehouses rose 2,875 tonnes to 519,550 tonnes, the highest since October 2003. While weekly copper stocks monitored by the Shanghai Futures Exchange rose 19 percent to 33,861 tonnes, beating expectations of a rise of 10,000 tonnes. Copper prices have fallen about 5 percent this week following trade data from China, which saw a 19 percent fall in copper inflows in January from December, and worries about the United States.
"It is very quiet - the trading ranges are very, very narrow," Edward Meir, an analyst at MF Global, said. "In general its more of a sideways drift ... We are not getting the sharp pullbacks anymore - things seem to be stabilising at a low base." An emerging US government plan to subsidise mortgages raised hopes for a recovery in the housing market, but scepticism about a plan to use $2 trillion to mop up bad assets and uncertainty over the economic stimulus package weighed.
"People are still very worried and until we see re-employment, we won't get the traction we need to sustain a rally," Peter McGuire, managing director of Commodity Warrants Australia, said.
Technical analysts expect copper to continue its pattern of range trading. Aluminium closed at $1,378 a tonne from $1,376. LME stocks of aluminium grew 3,925 tonnes to a record 2.93 million tonnes, while inventories at three major Japanese ports hit a 10-year high in January.
Nickel rose, following four days of declines, to close at $10,350 from $10,275 a tonne. "The main negative factor is the fear of falling demand, as stainless steel producers are reducing stocks," Commerzbank said. Warehouse operator Contisteel reported stainless steel inventories in its warehouses in Belgium and Holland had fallen 50 percent since last year, the bank said.
ThyssenKrupp, Germany's biggest steelmaker, said its second quarter would be more difficult than the first. Societe Generale's Wilson said nickel prices could dip below $9,000 a tonne unless further producer cuts are made. Lead ended at $1,170 from $1,139, zinc closed at $1,153 from a last bid of $1,155, tin was traded at $11,350 from $11,100 a tonne.