Copper rebounds on short covering, hopes on China liquidity

LONDON: Copper rebounded after three days of losses as some bearish investors cancelled their positions partly due to less worry about tighter liquidity in top metals consumer China.

China last week refrained from making its usual liquidity injections, but a central banker said in an article seen on Wednesday that liquidity would remain ample.

Investors are expecting China to cool credit growth and scale back fiscal stimulus this year to help stabilise debt.

"The market has been trying to come to terms with that cash squeeze we saw in China last week but there are some signs now that the squeeze has eased," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"The market is pausing, trying to gauge whether we've hit a peak in terms of Chinese activity and demand after that massive injection of stimulus into the economy last year."

Three-month copper on the London Metal Exchange added 0.6% to $7,820 a tonne by 1140 GMT.

Some investors bought copper to cancel their short positions after it held above a technical support area at $7,675-$7,700, Hansen added.

Wednesday's LME options expiry also played a part, Marex Spectron said in a note.

• On the Shanghai Futures Exchange, the most-traded March copper contract dropped as much as 1.3% to 56,860 yuan ($8,804.31) a tonne, their lowest in eight weeks, as investors were concerned about demand ahead of China's Lunar New Year holiday Feb. 11-17, when business activities slow.

A recent coronavirus upsurge in China has dampened the country's economic activities in January, dragging factory output and service activities growth to multi-month lows.

• LME cash copper was last at a $10-a-tonne premium over the three-month contract, a level unseen since September 2020, indicating tight supplies of LME inventories.

• LME aluminium dipped 0.1% to $1,971 a tonne, zinc gained 1.6% to $2,611, nickel shed 0.1% to $17,680, lead rose 0.4% to $2,024 while tin advanced 0.3% to $23,050.