London 21/01/2011 - Base metals rebounded on Friday on a weak dollar after days of heavy losses, with tin hitting hit a new record high, but gains were capped as rising Chinese inflation levels increased the risk that authorities will take more aggressive efforts to curtail price pressures.
Buyers emerged on Friday as the euro strengthened to a two-month high against the dollar on Friday, trading at 1.3544.
Tin surged to a fresh lifetime record at $27,720 per tonne - stops were triggered at the previous all-time high of $27,500 hit in November 2010.
“There is a deficit forecast for this year [for tin] and demand is OK. Physical premiums are holding,” a physical trader said.
Still, overall sentiment has turned bearish over the past couple of sessions after robust Chinese economic data hinted that more anti-inflationary moves are in the pipeline, potentially hurting demand in the world’s top metals consumer, while Asian equities are on course for their worst weekly performance in almost two months.
“Restrictions on bank lending in China are likely to hit non-state enterprises and reduce excessive leverage in property and other speculative activities,” Fairfax analyst John Meyer said. “Copper prices may easily fall to $8,500 per tonne or worse on this dampening of speculative activity.”
China has raised the reserve ratio requirement it charges banks four times in two months, while interest rates have been lifted twice in the past quarter.
While Chinese tightening may dampen metals trading activity, it is unlikely to cut growth rates dramatically, Meyer added. GDP growth in the country soared to 9.8 percent in the fourth quarter of 2010, the latest data indicated, defying expectations for a slowdown.
The complex has had a volatile week, with copper dipping below $9,300 on Thursday after hitting a fresh record high of $9,781 only one day earlier.
There is no major economic data scheduled for release on Friday.
While some analysts believe the complex appears overbought, others believe that the recent pullback is part of a healthy correction after the market got ahead of itself.
“This is an eerie replication of market conditions early last year and our warning to market participants is the same now as it was then: don’t be fooled. We view this recent pullback in prices as a healthy correction,” Barclays Capital said.
Others believe the bearishness is here to stay. “Given weakness in broader markets and concerns in the emerging markets about inflation and interest rate rises, we favour the downside in the short term,” FastMarkets analyst William Adams said.
Copper traded at $9,425, up $70, while warehouse stocks rose a net 775 tonnes to 381,300 tonnes.
Aluminium was $10 higher at $2,418, largely shrugging off another big inventory increase. Stocks jumped 64,000 tonnes to 264,175 tonnes, the highest for eight months.
This was due to a 66,875-tonne warranting in Vlissingen, which, like a similar 100,000-tonne jump on January 10, reflected warehousing financing operations or was possibly linked to a forthcoming ETC.
Nickel traded at $26,063, up $313. Prices have been supported by floods in Queensland, Australia, and the strength of economic data so far this year, but analysts at Barclays Capital do not expect a strong pick-up in Chinese buying activity until the conclusion of Lunar New Year celebrations in February.
Zinc traded at $2,353, up $23, while lead gained $33 to $2,470.
Zinc stocks held at 711,550 tonnes, the highest since October 21, 2004. Meanwhile, a five-day run of stock increases came to an end for lead, with a 175-tonne fall to 264,175 tonnes. Stocks are still close to their highest since 1995.
Tin soared to a fresh all-time high of $27,720 on Friday on solid fundamentals after closing indicated at $26,950/27,000.
Steel billet was indicated at $563/568. In the minors, cobalt was indicated at $38,000/39,500 while molybdenum was bid but not offered.
(Editing by Mark Shaw)