Copper ends flat despite rising inventories

Copper closed relatively flat on Monday, rebounding from earlier sharp losses as gains in U.S. equities overshadowed a large build in the red metal's inventories.

The metal had lost as much as 4 percent of its value earlier as inventories in London grew to their biggest since March 2004, fanning pessimism about Chinese demand.

"I think the equities are giving it a lift," said Rob Kurzatkowski futures analyst with OptionsXpress in Chicago, citing additional support from technically oversold price levels.

U.S. stocks markets were volatile but held positive ground when copper for December delivery settled 1.10 cents higher at $1.84 a lb on the New York Mercantile Exchange's COMEX division, up from an early low at $1.7805.

In London, three-month copper on the London Metal Exchange fell as low as $3,934 a tonne, and officially closed at $4,090 versus Friday's close of $4,099 per tonne.

"Prices are a bit weak," said Simon Toyne, an analyst at Numis. "One of the most noticeable things is the copper stock builds that have been going on the LME -- the last few days have seen a number of thousands of tonnes ... which is a bit unnerving."

LME copper stocks surged 7,275 tonnes to 237,925, the highest level since March 2004. The increase followed gains of 6,775 and 6,575 at the end of last week.

"Bouncing around looking a bit directionless," said Gayle Berry, an analyst at Barclays Capital. "When prices are coming off quite a bit, you do tend to see the shorts beginning to look for a bit of cover."

"That is what you are going to see much more of going forward -- these violent swings in prices, given the size of the short positions being built in some of the metals."

Prices for the metal, used in construction and power, have fallen more than 50 percent since reaching a record high of $8,940 a tonne in July.

In October, LME copper fell nearly 36 percent, its biggest drop since at least 1970. Nickel dropped 24 percent, its second biggest fall on record.

"I don't see any dramatic turnaround this month in commodities. Manufacturing is slowing in China. Industry is slowing down and for the next couple of weeks at least there is no light at the end of the tunnel," said Peter McGuire of Commodity Warrants Australia.

A measure of Chinese manufacturing activity showed factory output shrank sharply in October in the face of waning orders, while officials pledged further steps to boost domestic demand to keep the economy from slowing too much.

In the U.S., the Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September.