Industrial metals rebound, but euro concerns persist

Industrial metals bounced on Tuesday from a sharp sell-off in the previous session, but looked vulnerable due to persistent worries about austerity measures in the euro zone and demand growth in China.

Copper for three-months delivery on the London Metal Exchange rose to $6,612 a tonne by 0937 GMT, around 2.1 per cent from a close of $6,470 a tonne on Monday, when it tumbled as much as 7.1 per cent to hit its lowest since February 9.

"It’s hard to say that euro zone sovereign debt woes are over,” said analyst David Thurtell at Citi. “But we’re not seeing a wholesale panic which is good,” he said.

The euro slipped versus the dollar to near a four-year low, making industrial metals more expensive for non-US investors.

Euro zone finance ministers are working to iron out wrinkles in a 750 billion euro ($925 billion) plan they announced a week ago to calm markets and stem fears of Greek-style debt crises in the currency area.

"The fear now is the current problems in the region could drag the euro zone into a financial crisis,” an LME trader said. “Which means the euro zone would not be a big consumer of metals or in spending because of budgets cuts.”

A closely watched survey by the Mannheim-based ZEW economic think tank showed German analyst and investor sentiment fell more than expected in May.

China will do fine

Investors also worry that growth in China may have already peaked.

China’s key stock index rose 1.4 per cent after tumbling more than 5 per cent in the previous session, its biggest drop in over eight months, led by property stocks due to a severe state clampdown on runaway property prices.

But some analysts believe the worries are exaggerated.

"We think the markets are too concerned about China,” said Jesper Dannesboe, senior commodity strategist at Societe Generale. “We think China is going to do just fine in terms of growth over the next couple of years, including heavy infrastructure spending, to continue.”

Stock levels suggests demand remains strong, as inventories fall, with another 1,025 tonnes off the market on Tuesday, bringing the total to 483,150 tonnes, their lowest since end-December.

The most striking move among inventories was on aluminium on Tuesday, which showed a massive rise of 36,600 tonnes, taking the total to 4.51 million tonnes, close to the record highs.

LME aluminium, which slid more than 5 per cent in the previous session, was at $2,029 a tonne, from Monday’s $1,990.

Nickel firmed to $20,978 a tonne from $20,700 while the world’s top nickel miner Norilsk Nickel posted a return to profit in 2009.

Tin rose to $17,220 a tonne from $17,150 a tonne amid rising tin exports from Indonesia, the world’s top exporter of the metal.

Battery material lead was at $1,816 from $1,805 while zinc rose to $1,919 a tonne from Monday’s $1,899 a tonne.