Copper ended flat on Thursday, after hitting a session low below $7,000 a tonne for the first time in 18 months on persistent worries about global demand, but analysts said heavy short selling might be drying up and could spur a rebound. Three-month copper on the London Metal Exchange hit a session low of $6,800 a tonne, its weakest since October 20, 2011 and a loss of 4 percent.
But the metal - which has shed about 11 percent so far this year - pared losses to close at $7,088, some $8 up from its Thursday close. "The data shows that the market has never been this short. That for me is a big upside risk for prices because when people start closing out those shorts, you could get quite a big snap higher," said analyst Gayle Berry at Barclays.
Berry is advising clients to wait for a short-covering rally to approach around $8,000 a tonne and then sell into it. "When you look at the fundamental story for this year it is a market moving into surplus, there is going to be a continued recovery in supply and the second half of the year is when things look the weakest in terms of fundamentals." At the moment, fundamental demand for copper in top consumer China was not bad, said analyst Judy Zhu at Standard Chartered in Shanghai.
Stockpiles at copper fabricators such as makers of tubes for use in air conditioners have been rising, but there is room for further purchases. "We have seen some of them buying copper to replenish their stockpiles," Zhu said. "Consumers are quite happy with current prices," she added. Appetite for industrial metals has been eroded by a slowing pace of growth in China and a fitful recovery in the United States, while gold's historic fall has tarnished the allure of the metals sector for investors, analysts said.
Other LME metals were mixed. Aluminium closed only $1 down on the day at $1,913 a tonne while nickel gained about 1 percent to $15,530 after sinking to a low of $15,180, its weakest in 3-3/4 years. Those two are the two best performing LME metals so far this year, partly because they have already seen fairly heavy losses.
"Aluminium and zinc prices have been underperforming for quite some time. The market has known for a long time that those markets are in surplus, that stocks are high and prices are already eating into the industry cost curves," Berry said. In other LME metals, zinc gained 0.7 percent to end at $1,888.25 a tonne while lead rose 0.1 percent to $2,014 a tonne. Tin closed 1.7 percent up at $20,590 a tonne.