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Copper bounces despite inventories jump

Copper prices bounced on Wednesday as focus switched to shortages while fund buying added momentum, but concerns about demand prospects in top consumer China were highlighted by rising inventories.

Benchmark copper on the London Metal Exchange (LME) was up 1.2% at $9,786 a metric ton by 0942 GMT. Prices of the industrial metal touched a two-month low of $9,551 on Tuesday, hit by fading hopes of growth recovery in China.

“The sell-off was quite steep; funds are reversing shorts and the Anglo news reminded people about the possibility of copper shortages,” one metals trader said.

Anglo American AAL.L said on Tuesday that copper output at its Los Bronces mine in Chile is expected to fall by nearly a third from average historical levels next year as it halts a plant for maintenance that could take a couple of years.

Expectations of shortages and the prospect of strong demand in coming years drove LME copper to records above $11,100 in May. However, prices have since retreated on uncertainty about the timing of interest rate cuts in the United States.

Lower U.S. rates would weigh on the U.S. currency, making dollar-priced metals cheaper for holders of other currencies, potentially boosting demand.

Weak demand in China can be seen in copper inventories in LME-approved warehouses, mostly in Asia. At 158,700 tons, stocks have climbed more than 50% since the middle of May.

The discount, or contango, for cash metal over the three-month contract CMCU0-3 is around $139 a ton, hovering near record highs that indicate surpluses of the metal used in the power and construction industries.

“The wide contango and lacklustre manufacturing demand don’t feed into a narrative of refined supply being ‘tight’ and instead suggests we could see further price erosion going into a seasonally weak summer, notwithstanding any mining issues,” said Marex consultant Edward Meir.

Industrial metals markets were also awaiting news on Chinese interest rates on Thursday.

In other metals, aluminium was up 1.1% at $2,514 a ton, zinc CMZN3 rose 0.8% to $2,861, lead CMPB3 climbed 2.1% to $2,238, tin CMSN3 was up 0.4% at $32,260 and nickel CMSN3 gained 0.2% to $17,320.
Source: Reuters (Reporting by Pratima Desai, Editing by Christina Fincher and David Goodman)

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