Copper prices rose overnight as government economic stimulus boosted sentiment, but gains were capped by fears of prolonged shutdowns and longer-lasting damage to activity and demand.
Benchmark copper on the London Metal Exchange gained 1 per cent to $US4,859.50 a tonne. Prices of the metal used widely in power and construction have tumbled 25 per cent since the middle of January and are near four-year lows but bounced by 4 per cent on Tuesday.
“The impact on economic growth and demand is going to last for longer than people think. Industrial activity will take longer to pick up,” said Ben Taylor, a director at Simpson Spence Young. “Prices might recover in the short term, but from a macro perspective we’re due another leg lower.”
Authorities have employed a range of escalating and in some cases unprecedented measures in an effort to mitigate the fallout from the coronavirus, from private sector loan guarantees to credit liquidity intervention and direct fiscal stimulus.
“Wednesday will be an important day as a failure to build on Tuesday’s impressive gains will likely relegate the recent up move to a possible ‘dead cat bounce’,” ED&F Man analyst Edward Meir said in a note.
“(But) while investors may be encouraged by the trillions of dollars of stimulus they anticipate coming their way, they would be far more relieved to see signs that this global plague is finally coming to an end.”
Some expect weaker demand to be offset by closures, suspensions and disruption to mining operations, but lower prices for cash versus three-month prices of metals suggest expectations of market surplus.
The biggest and highest volume market for metal traded on the LME is for aluminium.
The discount for cash versus the three-month aluminium contract is more than $US30 a tonne, compared with about $US10 in early March.
Chinese aluminium smelters have cut annual production capacity by up to 340,000 tonnes in response to the price drop, analysts estimate.
Analysts say the impact of these cuts will be negligible in a market estimated at about 67 million tonnes this year and cite climbing stocks.
Aluminium stocks in warehouses monitored by the Shanghai Futures Exchange are at a 10-month high of 533,994 tonnes, while inventories in LME-approved warehouses have risen to a one-month high of 1.1 million tonnes.
Three-month aluminium shed 0.4 per cent to $US1,541 a tonne, zinc rose 1.4 per cent to $US1,840, lead climbed 3.4 per cent to $US1,639, tin jumped 6 per cent to $US14,210 and nickel was up 0.2 per cent at $US11,280.