METALS – Copper Recovers from Losses Amid Italy Banking Concerns, Reports Reuters

Impact of EU Bank Stress Tests on Metals Market

By Silvia Antonioli and Melanie Burton

LONDON, March 29 (Reuters) – Copper rebounded from losses earlier this week, recovering from a one-week low; however, gains remained limited due to concerns regarding Italian banks, which dulled investor enthusiasm. Meanwhile, aluminium was nearing new 2.5-year highs.

At 1502 GMT, three-month copper on the London Metal Exchange was priced at $9,540 per tonne, slightly up from $9,535 at Monday’s close. The metal had earlier dipped to a weekly low of $9,429.50 per tonne. Aluminium continued its upward trajectory, inching closer to levels last recorded in September 2008, around $2,650 per tonne, driven by unrest in oil-producing nations that has supported rising oil prices.

The announcement by UBI Banca in Italy regarding a €1 billion ($1.4 billion) capital raise negatively impacted investor sentiment, leading to declines in European stocks amid fears that other banks might follow suit.

Analyst Stephen Briggs from BNP Paribas noted that renewed global macro concerns, along with anticipated interest rate increases, are creating a challenging environment for industrial metals. "The issues in the eurozone are resurfacing. There’s uncertainty coupled with expectations of rising interest rates worldwide… the end of quantitative easing seems imminent, and with China tightening policies, these factors are unfavorable for risk appetite," he commented.

The European Banking Authority is expected to release the criteria for core Tier 1 capital to be used in the ongoing round of bank stress tests, along with the passing benchmarks for involved banks. Such developments may influence the euro and, consequently, the metals market.

Recent economic data from the United States revealed ongoing weaknesses in the housing market, while consumer confidence saw a decline from three-year highs in March.

On the aluminium front, the metal appears to be approaching its 2.5-year highs. Analysts suggest that its production is concentrated in the MENA region, making it particularly sensitive to geopolitical events, especially rising energy costs tied to nuclear developments in Japan.

Briggs indicated that approximately 35% of total cash costs for aluminium are attributed to energy expenses.

China’s Copper Market Dynamics

Additionally, there is a growing consensus that Chinese copper consumers may delay re-entering the market until post-Q2, owing to increasing stockpiles and lackluster demand signals. This shift is alleviating previous concerns about tight supply, which had contributed to price increases earlier this year.

Standard Bank recently highlighted that the substantial refined copper inventories in China cast doubt on anticipated supply deficits for the year, suggesting a potential balance or even a slight surplus in the market.

Typically, Chinese consumers ramp up copper purchases in Q2 with intensified construction activity as spring arrives in the Northern Hemisphere; however, prevailing geopolitical tensions in the Middle East could hamper demand, according to Goldman Sachs.

Goldman Sachs maintains that strong growth in copper demand will likely outstrip supply growth, resulting in a tight market for the metal. However, they caution that recent geopolitical events may pose risks to demand, potentially altering their predictions for low inventory levels.

Latest figures show copper inventories at the London Metal Exchange decreasing by 400 tonnes to 439,500 tonnes, although overall stocks have risen by over 25% since mid-December. The copper market is currently experiencing a contango situation, reflecting weaker spot demand compared to cash prices earlier in the year.

As for other metals, tin was priced at $31,560, zinc at $2,362, lead at $2,660.50, aluminium at $2,647, and nickel at $26,460.

Metal Prices Overview:

• COMEX Copper: 433.80 cents/lb
• LME Aluminium: $2,648.00
• LME Copper: $9,540.00
• LME Lead: $2,650.00
• LME Nickel: $26,460.00
• LME Tin: $31,560.00
• LME Zinc: $2,365.00

Note: This article has been edited for clarity and conciseness.