Copper Rises on Hopes That China will Increase Demand

Copper rose almost 4 per cent to as investors bet a rate cut in China, the world's top consumer of the industrial metal, could help boost growth and demand.

However, metals trimmed some of their gains as the US dollar rose against the euro later in the day on renewed risk aversion and European shares fell along with Wall Street, dragged down by weak US data that fanned recession fears.

"The dollar has strengthened quite a lot, that's taking a little bit off the prices," analyst Michael Widmer at BNP Paribas said.

Copper for three-months delivery on the London Metal Exchange rose as high as $US3840.50 an ounce, before easing to $US3755 per tonne at the close, still up $US60 from yesterday.

"China is such a massive consumer of metals, much more so than the United States and Europe," Citi analyst David Thurtell said. "If the US or Europe cuts rates it's positive but not nearly so significant as these Chinese cuts for base metals."

China cut its benchmark rates for one-year loans and deposits by 108 basis points. The cut in the lending rate was the largest since October 1997 and that in the deposit rate was the biggest since June 1999.

Industrial metals were also boosted by short covering as investors who had bet on lower prices bought back their positions.

"We may see a further bit of short covering ahead of Thanksgiving and the month end," Leon Westgate, an analyst at Standard Bank, said.

Output cuts by some producers in response to lower metal prices may also be starting to make an impact. Copper inventories in LME warehouses fell 875 tonnes to 286,350 tonnes, the first decrease since October 20.

"This is the shape of things to come as producer cutbacks take effect," a trader on the LME floor said.

But without demand, the supply cuts still may not be enough to support prices. The macroeconomic data from the world's biggest economy, the United States, continued to look grim.

US consumers cut spending during October at the steepest rate in more than seven years and orders for costly manufactured goods plummeted, according to Commerce Department reports that implied a steep recessionary downturn was at hand.

Some other metals were boosted by continuous supply cuts.

The world's biggest zinc producer Nyrstar said it will cut output by 25,000 tonnes this year and 130,000 tonnes in the first half of 2009 as a result of falling zinc prices.

The metal, used to galvanise steel, jumped 5.1 per cent to a high of $US1310, before ending the day at $US1260 per tonne from $US1246 at the close yesterday. Prices have dropped more than 40 per cent this year.

Australian miner Straits Resources will scale back next year's production target at its Tritton copper mine to 2200 tonnes a month.

An official of PT International Nickel Indonesia one of the world's top nickel producers, said the firm may cut output 20 per cent next year.

Nickel was at $US10,600 from $US10,500.

Hydro Aluminium, the German unit of Norwegian group Norsk

Hydro, is considering production cuts, while Montenegro's sole aluminium plant KAP will cut its output by half in response to falling metal prices and high energy costs.

Author: Jo Amey