Copper (HG-FT) slid on Wednesday, knocked by worries about demand after the latest move to tighten monetary policy in top consumer China, but analysts say strong growth data later this week will reinforce bullish sentiment.
Benchmark copper on the London Metal Exchange was trading at $7,460 (U.S.) a tonne at 1030 GMT from $7,545 a tonne at the close on Tuesday. The metal used in power and construction earlier hit a session low of $7,452 a tonne.
Losses were triggered by news that Chinese authorities have instructed some major banks to curb their lending over the rest of this month. Last week China raised bank reserve requirements for the first time since June 2008.
“But tonight we will see strong economic data from China, this will give commodity prices fresh support,” said Daniel Briesemann, analyst at Commerzbank.
Thursday sees the release of fourth quarter gross domestic product and December industrial production data in China, which accounts for more than 30 per cent of global copper demand estimated at 19 million tonnes this year.
Before then, the market will get a taste of how the land lies in the United States, the world's second largest consumer of copper, with the release of December housing market data at 1330 GMT.
“A second leg lower is possible when the U.S. housing numbers comes out ... recent data hasn't been too hot,” a trader on the LME floor said.
He added the stronger dollar against the euro was also partly behind negative sentiment in base metals, which could extend losses if U.S. producer prices raise the spectre of higher interest rates in the United States.
China Dominates
Overall, mining firms and investors are bullish about prospects for industrial metal prices, some of which have more than doubled over the past year.
“Investors remain confident in the global economic recovery, still betting on higher metals prices as we go forward,” said VTB Capital in a note.
“(However) a rapid manufacturing recovery is much needed in the West in order to help use existing stockpiles and fuel demand growth that is now predominantly driven by China's success story.”
Stocks of copper in London Metal Exchange warehouses at 526,650 tonnes are more than double the levels seen in the middle of July and the highest in 10 months.
Aluminum (AL-FT) inventories at above 4.62 million tonnes are within touching distance of record highs.
But the aluminum market is focused on financing deals – where banks buy material now and sell it forward, generating a return that far surpasses money market interest rates.
Effectively these deals help release cash for producers, but they also tie up material and have been a feature in other industrial metal markets.
Aluminum used in transport and packaging was trading at $2,275 a tonne from $2,293 on Tuesday, battery material leadat $2,413 from $2,425 and stainless steel ingredient nickel at $18,940 from $19,200.
Zinc, used to galvanize steel, was trading at $2,876 a tonne from $2,503 and soldering material tin at $17,900 from Tuesday's last bid at $17,975.
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