Copper rebounded on Wednesday after hefty falls in the previous session, as some bulls took advantage of Chinese investors being absent due to the week-long Lunar New Year holiday. Chinese funds helped drive a rout on copper markets last month, that sent prices spiralling down to the lowest levels in 5-1/2 years amid worries about a slowing Chinese economy and surging copper inventories.
"Yesterday the selling was coming from the Far East, but they're not around at the moment. The price was ramped up through resistance, and that set off stop-loss buying," a trader said. Three-month copper on the London Metal Exchange (LME) closed up 1.7 percent at $5,745 a tonne, offsetting a fall of the same magnitude in the previous session, its biggest one-day drop in three weeks.
Copper prices have recovered around 8 percent since hitting the 5-1/2 year low in January, but the metal used in power and construction has still fallen some 9 percent so far this year. Copper has been stuck in a $5,300 to $5,800 trading band for the past month and traders expect little to change until post-holiday trade revives in China. Markets in China will reopen on February 25.
"Prices sold off yesterday and are still recovering," said Daniel Briesemann, an analyst at Commerzbank. "Liquidity is very low due to the Chinese players being absent. It will be this way until the Chinese customers come back into the market." Brokerage Marex Spectron said its Copper Sentiment Index, derived from a proprietary algorithm and data from the three major copper exchanges, showed a reading of minus 90.0, indicating sentiment remains extremely depressed, but has moved off a recent low of minus 95.7, the same level as a low in 2008.
"With the level of speculative shorts having reached such an extreme recently, it is likely that a major deterioration in the global economy is needed for copper to make material new lows this year," Guy Wolf, global head of market analytics at Marex Spectron, said.
Also supporting metals markets was optimism over Greece. Share markets stormed to multi-year highs as investors bet a deal over Greece's debt will be reached by the end of the week. Lead ended 1.1 percent higher at $1,813 a tonne after earlier sliding to a one-month low of $1,786, while zinc shed 0.8 percent to close at $2,087, the weakest since January 30. Aluminium closed up 0.1 percent at $1,819 a tonne, tin edged up 0.1 percent to $18,075 and nickel gained 0.2 percent to $14,255 after earlier touching a fresh three-week low.