LONDON: Copper prices firmed slightly on Thursday as investors balanced optimism over potential U.S. interest rate cuts with concern about high inventories and lacklustre demand in China.

Three-month copper on the London Metal Exchange (LME) was up 0.1% at $9,875 a metric ton by 1000 GMT.

The price had jumped 2% in the previous session for its biggest daily gain since June 6, but LME copper has eased 11% since its record high of $11,104.50 on May 20.

“It looks like the focus is once again turning to the potential for U.S. interest rates being cut,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Global equities clocked up more record highs after U.S. data narrowed the odds on the Federal Reserve cutting interest rates in September and sent the dollar index lower.

A weaker U.S. currency makes dollar-priced commodities less expensive for buyers using other currencies.

A renewed rally, however, not only requires lower interest rates, but also a pick-up in demand and shrinking inventories, Hansen said, adding that the market has adopted a wait-and-see approach.

LME copper inventories have surged 80% since mid-May to 186,275 tons. Stockpiles in Shanghai Futures Exchange warehouses have eased slightly in recent weeks but are still 10 times the level at the start of the year.

“Copper has limited upside as exchange inventories pile up and demand remains price-sensitive,” said Sandeep Daga at Metal Intelligence Centre.

Citi analysts, however, said LME copper could test $10,000 a ton in the weeks ahead, citing hopes of Chinese policy easing in July and expectations of a Fed rate cut in September.

Any move close to that psychological $10,000 level would be likely to spark profit-taking until fundamentals improve, Hansen said.

In other metals, LME aluminium dipped 0.2% to $2,543.50 a ton, nickel eased by 0.4% to $17,255, lead was down 0.2% at $2,217 while tin shed 0.5% to $33,195 and zinc gained 0.6% to $3,007.50.