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Copper bounces but gains seen short-lived

By Eric Onstad

Copper prices rebounded four per cent overnight on the back of a new wave of US economic stimulus and worries about supply due to the coronavirus, but analysts said the market's gains were likely to be fleeting.

Industrial metals joined wider financial markets in rebounding after the US Federal Reserve offered unlimited bond buying, sending more dollar liquidity into the global economy.

Also supporting base metal prices were further virus-linked shutdowns in metal-producing countries, which will lead to lower mine output.

But independent consultant Robin Bhar said that the collapse in demand so far was sharply outweighing mine closures.

"Supply constraints are appearing, but all of Chile and central Africa would have to shut down to kick out enough supply of copper to match the potential fall we're seeing in demand," he said.

Chile is the world's top copper producer, accounting for nearly a third of global mine output.

"This is a corrective bounce, we're not nearly out of the woods yet. At the moment, any bounces are there for profit taking or to be sold into. I think we need to be prepared for more losses in industrial metals," Bhar said.

Three-month copper on the London Metal Exchange had gained four per cent to $US4,813 a tonne by 1700 GMT, on track for its biggest one-day gain since September 2018.

Copper, widely used in construction and power sectors, has slumped by a fifth on the LME so far this year.

Also bolstering metals prices was a weaker dollar, which makes commodities priced in the US currency cheaper for buyers using other currencies.

The net speculative short position on LME zinc has risen to 38 per cent of open interest, in line with the peak seen in November 2015, broker Marex Spectron said in a note.

Charges for processing copper concentrate in China have fallen for the first time since December, as the coronavirus outbreak leaves smelters uncertain about future supply.

The global world refined copper market showed a 68,000 tonnes surplus in December, compared with a 49,000 tonnes deficit in November.

The discount of LME cash aluminium over the three-month contract expanded to $US34 a tonne, a level unseen since May 2019, indicating healthy nearby supplies in LME warehouses.

LME inventories have gained 14 per cent over the past week, rising to 1.1 million tonnes, the highest in a month.

Three-month LME aluminium shed 0.7 per cent to $US1,550.50 a tonne.

The global nickel market surplus widened to 13,100 tonnes in January from a surplus of 5,200 tonnes in the previous month.

LME nickel gained 3.5 per cent to $US11,260 a tonne, zinc added 0.3 per cent to $US1,823, lead dropped 1.1 per cent to $US1,595.50 and tin climbed 1.6 per cent to $US13,455.