Copper fell to a nine-week low in London and New York Monday, as pessimistic manufacturing data out of China reminded the globe how critical the country's economy is to the entire base metals complex. Adding more downside pressure was resurrecting concerns from risk-adverse investors over the health of the EU economy.
The government's efforts to cool growth in China are kicking in. A purchasing managers' index released Monday by HSBC Holdings Plc and Markit Economics slid to a six-month low of $55.4. Futures for July delivery dropped 3.05 cents, or 0.9 percent, to $3.263 a pound at 8:09 a.m. on the COMEX in New York. Copper for delivery in three months fell 3.3 percent to $7,186 a metric tonne on the London Metal Exchange.
Copper rapidly ascended in January and February, but in March when concerns over Chinese demand first surfaced, the red metal declined 4.6 percent. The Chinese government has been taking steps to reign in the economy in hopes of preventing an inflationary bubble. Over the weekend, the Chinese government made another move in an attempt to cool growth by lifting the reserve requirements for banks. Higher reserve ratios could mean tighter credit for manufacturers and construction companies, in turn damping copper buyers' demand.
China consumes about a third of the world's total copper demand, which is why the country's aggressive stimulus buying in 2009 resulted in the metals 38 percent price appreciation. The copper purchased in 2009 largely went into stockpiling, and not actual use. This is a huge contributing factor as to why the International Copper Study Group predicts that the country's demand for the metal could drop by as much as 13 percent in 2010. Inventories of metal tracked by the LME fell for a sixth day, slipping 0.5 percent to 496,975 tonnes, the lowest level since Dec. 30. Bookings to remove metal from warehouses slid for a fifth day, dropping 8.9 percent to 24,075 tonnes.
With China's appetite waning, analysts are worried that copper prices are vulnerable to an even deeper correction in the short-term. Wayne Atwell, managing director and head of research with natural resource investment bank Casimir Capital in New York, believes copper could head as low as $2.90 a pound on the COMEX over the next couple of months. Copper market optimists claim that the market still has strong fundamentals, copper consumption in the U.S., European Union and Japan is expected to grow about 7 percent in 2010. The metal has solid long-term support in the fact that many believe world-wide copper demand in coming years will outstrip new mine capability. The ICSG expects copper demand to grow 5.1 percent in 2011 as the rate of economic recovery in major copper consuming regions accelerates. According to Patricia Mohr, vice president and commodity-market specialist at Toronto-based Scotiabank, any pullback by the metal will be temporary. Mrs. Mohr also sees copper averaging at least $3.30 a pound on the COMEX this year.
In India, a strong domestic market inched copper futures upwards, but they were capped by the doldrums experienced by the London and New York markets. Copper futures traded at Rs 3.25, or 0.99 percent higher at Rs 330.40 on the Multi Commodity Exchange platform. Copper for delivery in November contract rose Rs 3.25 or 0.99 percent to Rs 330.40 per kg, with an open interest of 16 lots. The metal for delivery in June contract also edged up 0.51 percent to Rs 326.75 per kg, in an open interest of 26,065 lots.
With help from Assistant Editor Vivien Diniz