March 4, 2020 / 12:20 PM / 24 days ago

METALS-Copper gains as Fed's rate cut gets positive response

* Sparse China data leaves market vulnerable to swings

* Copper and aluminium inventories in Shanghai jump (Adds closing prices)

By Pratima Desai

LONDON, March 4 (Reuters) - Copper prices climbed on Wednesday as traders interpreted the U.S. central bank’s rate cut as a positive move that will ease liquidity, but worries about demand in top consumer China dominated.

Benchmark copper on the London Metal Exchange ended up 0.3% at $5,684 a tonne. Prices of the metal used by investors as a gauge of economic health touched $5,780.5 on Tuesday, the highest since Feb. 21.

The U.S. Federal Reserve cut interest rates on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus, in what was seen as an emergency move.

“It spooked markets in the sense of what do they know that we don’t. But people have realised the intention was to calm and ease financial conditions which have been tightening due to falling equities,” said Julius Baer analyst Carsten Menke.

“Data from China is sparse at the moment and that leaves the market very susceptible to sentiment swings, but it is important to watch things like inventories in China.”

VIRUS: Worry about the damage to growth and demand from the spread of the coronavirus from China to other countries have roiled equity and commodity markets in recent weeks.

“The current situation is worryingly unique, because unlike the SARS episode of 2002-2003, the world is considerably more integrated,” ED&F Man analyst Edward Meir said in a note.

“This outbreak seems to be more widespread as well. More importantly, unlike 2003, China is now an economic powerhouse and a key link in the global supply chain, as is South Korea to a more limited extent.”

CHINA: Metals markets are watching the stock build in China for clues to manufacturing and construction activity.

“If activity is picking up then inventories will stop rising and eventually start falling,” Menke said. “Inventories are a very important indicator because it makes visible problems in manufacturing and construction.”

INVENTORIES: Copper stocks in warehouses monitored by the Shanghai Futures Exchange CU-STX-SGH at 310,760 tonnes are more than double the levels seen in the middle of January.

Aluminium stocks AL-STX-SGH too have more than doubled since the middle of January to 439,087 tonnes.

“Manufacturing and construction activity can stop, you can’t easily stop producing metals,” a trader said.

Three-month aluminium rose 0.2% to $1,726 a tonne.

OTHER METALS: Zinc gained 0.3% to $1,982, lead slipped 1.3% to $1,818, tin added 1% to $16,925 and nickel climbed 0.9% to $12,680 a tonne. (Reporting by Pratima Desai. Editing by Jane Merriman, Louise Heavens and Alexander Smith)

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