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Copper up after China rate cut, awaits ECB decision

LONDON/SHANGHAI - Copper rose on Thursday after China trimmed interest rates, but the move was tentative ahead of a European Central Bank meeting that is expected to cut rates and may revive stimulus measures that could boost economic growth and metals demand.

Three-month copper on the London Metal Exchange rose as much as 0.8 percent to a session high of $7,790 per tonne after the Chinese central bank cut its benchmark lending rate by 31 basis points to 6 percent,

It was the second time in two months the People’s Bank of China had cut rates as it aims to bolster slowing growth in the world’s second-largest economy.

Aluminium pared losses after the Chinese move to be down 0.1 percent at $1,950 a tonne at 1117 GMT.

Copper has rebounded about 5 percent since last Thursday, boosted by a European agreement on a surprise euro zone rescue deal and expectations that weak economic data would lead to fresh stimulus measures by global central banks.

Investors expected the ECB to cut rates by a quarter percentage point when it announces its decision at 1145 GMT, after surveys showed all of Europe’s biggest economies are in recession or heading there.

Some also hoped that ECB President Mario Draghi will announce the bank will resume its purchases of government bonds when he holds a news conference at 1230 GMT, but analysts said this was an unlikely scenario. “The markets have largely priced in a (ECB) cut already, so it’s hard to see that we’re going to have any significant further bounce,” said analyst Wiktor Bielski at VTB Capital in London.

“I suspect the ECB possibly wants to just hold its fire for the time being, a little bit like the Fed, and try to time any announcement so it can get the biggest and most positive reaction.”

A rate cut by the ECB would back up the EU summit deal to strengthen the region’s financial system and help avert a break-up of the euro zone.

Investors are also keeping an eye on Friday’s key monthly US jobs report for clues on whether the Fed will take additional easing steps. Non-farm payrolls were expected to see an addition of 90,000 workers in June, with the unemployment rate holding steady at 8.2 percent.

Chinese restocking

In physical markets, opportunistic restocking in China have helped support copper prices and keep the spread of Shanghai’s July contract over its October contract in backwardation since early May.

Prices may also be bolstered by a small pick-up in downstream copper demand. In a note on Thursday, Barclays Commodities Research said demand was solid for transport-related copper and improving for copper wire order books in China, but warned that sentiment remained bearish, which means fewer long positions by investors.

“Risk to prices in the near term is from positioning and policy, either of which would trigger a sharp short-covering rally. However, we would view these gains as difficult to sustain without an improvement in economic activity,” it added.

In China, Shanghai aluminium was one of the session’s best performers, with the most active Shanghai contact recovering 5.1 percent by the end of the day from a three-year low it posted last week as Chinese traders piled back in believing it was oversold.

“Despite problems of overcapacity in China, aluminium looks one of the most attractive to traders now among the industrial metals at these low price levels,” said a metals buyer.

In other metals, LME nickel gained 1.1 percent to $17,114 a tonne and zinc rose 0.33 percent to $1,904.25 a tonne.

Tin was unchanged at $19,150 a tonne and lead added 0.5 percent to $1,915.25.