Copper shook off earlier losses in volatile trade on Thursday, rallying sharply after China's government agreed to cut benchmark lending and deposit rates for the first time since the global financial crisis.
While the rate cut was seen as the most aggressive move yet to shore up growth in the face of rapidly-slowing economic activity, metals traders and analysts said the positive impact on prices would be fleeting.
Three-month copper on the London Metal Exchange rallied from around $7,381 a tonne just before the decision to stand at $7,485 in official rings. It closed at $7,411.
“The bigger issues are still euro dollar and what happens with Europe, the bounce in commodities this week has been more dollar related, and the perception of a G7-coordinated European bail out, that's the bigger driver,” Citi metals analyst David Wilson said.
Copper has fallen almost 15 percent from this year's peak of $8,765 touched in February because economic worries from China to Europe and the United States have raised concern that demand for the metal would be eroded.
Broadening the lens to energy, oil struggled to maintain the $100 a barrel handle due to slack demand. By contrast, a volatile euro extended gains to its highest in 10 days against the dollar, buoyed by decent demand for Spanish debt and expectations the US Federal Reserve could signal further monetary easing measures.
Marex Spectron macro strategist Guy Wolf said the broad economic backdrop would apply downside further pressure to demand for commodities like copper.
“We're still bearish in the short term, we don't believe that QE is likely in the US and we don't think the EU can move sufficiently quickly towards the various proposals that are being talked about,” he said.
“Anyone involved in metals has been concerned about the weak signals coming from China all year - US economic and general market strength were propping copper prices up, despite the fact that excessive stockpiles were building but outside of the LME warehouse structure,” he added.
Comments by the Fed's second-highest official had strengthened the case for the US central bank to provide more support to a fragile economy.
Janet Yellen, the vice chair of the Fed, cited risks from ongoing US housing problems, a weak jobs market to worsening financial conditions.
Investors will scrutinise US Federal Reserve Chairman Ben Bernanke's testimony in front of a congressional committee at 16:00 SA time for intent to further ease money supply.
Another round of bond buying by the Fed would boost liquidity in markets, arming investors in theory with funds to bet on risk assets such as copper.
But the real test of demand for industrial raw materials will be in China.
The world's top copper consumer will release the latest import data this weekend and some analysts are expecting China's refined copper imports to fall for a third straight month in May, which could deflate prices next week.
Bulging stockpiles at home and slow demand had curbed Chinese appetite for the metal, giving traders less reason to snap up copper which fell to a 2012 low of $7,301 last week.
“Copper will be stuck in narrow-range trading until there is more clarity on whether governments will roll out monetary easing policies to combat a slowdown in their economies,” said a Shanghai-based trader with an international firm.
“LME copper has to overcome a technical resistance level at around $7,500 first before we can see a clear upward path.
But I'm bullish, as I think conditions will push governments towards monetary easing,” he added.
In other metals, aluminium was $1,986 per tonne in rings from $1,979 at the close on Wednesday.
Tin, untraded in rings, was bid at $19,600, flat from the Wednesday close, while nickel was $16,500 in rings from $16,100 a tonne.
The premium for cash tin over the benchmark three-month contract hit its highest since February 2011.
Zinc, untraded in the rings, was bid at $1,903 a tonne from $1,879, while lead was $1,940 from $1,908. - Reuters