Copper rallied from three-week lows on technical buying on Thursday, although concerns about the risk of the euro zone returning to recession and the knock on effect to top metals user China suggested gains could prove short-lived.
Three-month copper on the London Metal Exchange traded at $7,290 a tonne in official rings , up from $7,210 at the close on Wednesday.
The metal, considered a bellwether economic indicator because it is used in power and construction, fell to its lowest since November 24 at $7,131 earlier. It is down 8 percent so far this month.
“What yesterday told us was that the markets have turned even more bearish on the macro outlook. What we saw was people becoming more confident of shorting the metals ...because people weren't convinced with what happened with the EU. summit,” said analyst Gayle Berry of Barclays Capital.
“Unless we get any fantastic surprises on the upside by European lawmakers in the next week, which is doubtful, then I think this strength will prove short-lived.”
Evidence that a series of euro zone summits have failed to stop the region from sliding into recession have caused investors to sell out of industrial metals, and consumers to hold back their orders for next year.
The decline in the euro zone's private sector eased a little this month, but a recession still looks inevitable with the region's periphery struggling, a key business survey showed on Thursday.
Data showing China's first year-on-year drop in foreign direct investment in 28 months, highlighting the increasing risk to China's growth posed by slowing developed market economies.
“The funding stress that triggered the sharp sell-off in precious metals also affected industrial metals. Since industrial metals are more cyclical, they tend to be even more affected by such adverse financial market conditions,” Credit Suisse Private Banking analysts said in a note.
COPPER SUPPORT CRACKS
London traders said the market was in a sell-the-rallies mode, even in copper which has been better underpinned than other metals given its crimped supply pipeline.
“Short-covering spikes are going to happen, but it's definitely sell the rallies here, definitely....in copper, last time we were down here we had a lot of Chinese interest - this time, not a squeak,” said one LME floor trader.
“Additionally weighing on the price of copper is the fact that mining company Freeport reached an agreement with workers at Grasberg Mine in Indonesia to conclude a new two-year collectively agreed contract,” Commerzbank said in a note.
“Fears of short supply should now be rapidly dispelled.”
Freeport McMoRan Copper & Gold Inc expects full operations at its Indonesia mine to resume by early 2012 after reaching a pay deal on Wednesday to end a three-month strike that paralysed output at the world's second-biggest copper deposit.
However demand remains steady with a large shipment of new orders in New Orleans today, according to LME data, possibly bound for China.
LME copper stockpiles have dropped by nearly one quarter since mid July.
Among other metals, aluminium traded at $1,985 a tonne, up from a $1,962 close on Wednesday when it sank to a 2011 trough. The poor demand environment has many traders expecting more metal to arrive in LME sheds.
Battery material lead was bid at $1,9 99 in rings from $1,998 while zinc was at $1,8 86 from $1,845 at Wednesday's close.
Nickel was untraded in official rings but bid at $17, 825 from $17,400. The global nickel market moved into a 5,600 tonne surplus in the first ten months of 2011, according to an industry group.
Tin, also untraded was bid at $18, 650 from $18,525. Tin smelters in the world's top tin exporter, Indonesia, are likely ship 5,000 tonnes of the base metal in December, an industry group said on Thursday. - Reuters