Copper fell to its lowest in almost a weak on Thursday as data showed the factory sector in top metals consumer China shrank in July, but losses were capped by a softer dollar and hopes of a resolution of the Euro debt crisis.
Benchmark copper on the London Metal Exchange traded at $9,660 a tonne by 14:35 SA time, down 0.98 percent from $9,755 at the close on Wednesday.
The metal used in power and construction was about 5 percent lower than a record high of $10,190 it hit on Feb 15.
“We are seeing a bit of weakness today despite a weaker dollar and despite the possibility of a preliminary solution of the Euro crisis,” Eugen Weinberg, an analyst at Commerzbank, said.
“This is stemming mainly from China. The preliminary reading of PMI from HSBC is dampening a bit of optimism.”
China's factory sector contracted for the first time in a year in July and at its fastest pace since March 2009, a purchasing managers' survey showed, as monetary policy tightening and slack global demand weighed on the economy.
Chinese data also showed monthly imports of refined copper rose 19.7 percent in June from a 30-month low seen in May, due to improved arbitrage and the arrival of contracted spot metal.
“On the other hand it is still possible that the Chinese government will continue to tighten its monetary policy given the rising inflation...this may cool demand for copper,” Weinberg said.
Supporting copper, the euro rose sharply against the dollar boosted by EU summit draft proposals which made reference to extending EFSF loans and allowing the rescue fund to intervene on a precautionary basis.
A softer US currency makes dollar-priced commodities less expensive for holders of other currencies.
SHORT-TERM WEAKNESS
However, analysts said this is a short-term weakness and copper will attract more inflows of investors again, as the economy recovers, due to sound long-term market fundametals.
“The latest supply dynamics in the copper market hint at some easing of immediate tightening pressures,” Credit Suisse said in a note. “This coincides with a pause in inventory drawdowns at both the LME and SHFE exchanges. However, we view this moderation as temporary due to the robust underlying demand.”
Analysts forecast the copper market will be in a 343,150 tonne deficit this year, the Reuters survey showed.
“We are optimistic for copper and nickel,” Weinberg said.
Nickel was at $23,875 a tonne from $24,045 per tonne at the close on Wednesday.
A fall in nickel inventories pointed to tightness. Nickel stocks in LME-approved warehouse fell 354 tonnes to 101,574 tonnes, the lowest since late March 2009, latest data showed.
This, coupled with nickel mining projects delays, is quite supportive for the metal used for stainless steel production n the short medium-term but many large projects will come on stream in 2012-2013 and this will dampen nickel prices, Weinberg explained.
The global nickel market was in supply deficit by 9,300 tonnes in the first five months of 2011, the latest monthly bulletin from Lisbon-based International Nickel Study Group (INSG) showed on Tuesday.
Tin was at $27,950 from $28,300 while zinc , used to galvanise steel traded at $2,453 from $2,454 Wednesday's close.
Battery material lead traded at $2,719.25 from $2,700 and aluminium at $2,518.75 from $2,536. - Reuters