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Copper recovers from two days of falls amid US rate cut hopes

Thursday, January 17, 2008

LONDON (Thomson Financial) - Copper recovered from two days of falls amid overnight gains in Asia, a rebound in global equity markets and hopes the current US economic slowdown might be tempered by aggressive rate cuts.

In addition, further falls in LME inventories, combined with a recovery in other commodities like gold and oil and reports of physical buying in China also boosted prices of the metal.

"Given the weak outlook for the US economy it is easy to be bearish for base metals and over the long run we think a downturn in the US will drag down the global economy enough to see metal prices fall significantly later in 2008.

"However, near term we think there is room for some rebounds as China steps up imports and reduces exports across the metals and as consumers switch from destocking mode to hand to mouth buying," said BaseMetals.com analyst William Adams.

At 9.58 am, LME copper for 3 month delivery was up at 7,112 usd a tonne against 7,000 usd at the close yesterday.

Players are awaiting US Federal Reserve chairman Ben Bernanke's testimony later this afternoon to the House Budget Committee on the outlook for the US economy.

Yesterday, relatively benign US consumer price inflation data for December raised hopes that aggressive Fed rate cuts will be possible, and will not necessarily lead to runaway inflation.

As a result, equity markets recovered in Asia today while European stock markets have opened higher, even though many feel the rebound, in equities as well as commodities, is tenuous at best.

"Recession fears are still at the forefront of everyone's trading strategies," said analysts at RBC Capital Markets. They added, however, that declining copper stocks are currently preventing heavy selling.

The LME said in a daily report today copper stocks held in its warehouses fell by a large 5,500 tonnes to total 185,550 tonnes. Stocks have now fallen for eight days straight.

Elsewhere, lead was down at 2,600 usd a tonne against 2,609 usd, with analysts saying it might struggle near term as supplies from Australia, shut in for nearly a year now, are expected to come back on stream shortly.

The Australian authorities have reportedly given conditional approval for Ivernia's Magellan mine to ship lead concentrates via the alternative port of Freemantle.

The news "may prove a hurdle for lead prices, but given this has been expected for a number of months now this may well already be in the price", said Adams.

Nickel rose to 28,225 usd against 27,900 usd, with markets cautiously upbeat on the outlook for prices amid hopes demand from the stainless steel will pick up shortly.

"Reports indicate that Chinese firms are holding off purchases of nickel hoping for weaker prices, although this could be a dangerous game with significant increases expected this year in terms of demand from new stainless steel capacity and production," Fairfax IS analyst Marc Elliot.

In other metals, tin was flat at 16,300 usd, aluminium was up at 2,475 usd against 2,469 usd while zinc was flat at 2,280 usd.

Posted by MOHAMED SAID at 3:46 AM  

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