Last update: Sun, 14 Feb 2016 03pm
Home» Markets - Commodities » Europe

Copper tumbles below $7,000, short-covering rally expected

imageLONDON: Copper extended losses on Thursday, breaking below $7,000 a tonne for the first time in 18 months amid persistent worries about global demand, but analysts said heavy short selling may dry up and spur a strong rebound.

Three-month copper on the London Metal Exchange hit a session low of $6,800 a tonne, its weakest since Oct. 20, 2011 and a loss of 4 percent.

But copper - which has shed about 12 percent so far this year - pared losses to $6,992 a tonne in official midday trading, down 1.2 percent.

"I don't think we'll stay below $7,000 for too long... 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 sector for investors, analysts said.

Losses in LME copper triggered a steep sell-off in other metals, with the most-traded August copper contract on the Shanghai Futures Exchange hitting limit down of 4 percent at 50,530 yuan ($8,200) a tonne.


Other LME metals were more robust, such as aluminium, which moved into positive territory, rising 0.3 percent to $1,901 a tonne in official trading.

Nickel edged down $10 to $15,415 a tonne in official rings after sinking to a low of $15,180, the 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 China, the most active aluminium and zinc contracts on the Shanghai Futures Exchange fell to their lowest in more than four years.

In other LME metals, zinc rose 0.2 percent to $1,880 a tonne in official rings while lead shed 0.3 percent to $2,015 a tonne.

Tin, which failed to trade in official rings, was bid at $20,300 a tonne, down 0.5 percent.

Copyright Reuters, 2013