Copper flat as U.S., China data offset strong dollar

LONDON Thu Oct 25, 2012 12:39pm EDT

A labourer works at a copper processing factory in Yingtan, Jiangxi province March 1, 2010. REUTERS/Stringer

A labourer works at a copper processing factory in Yingtan, Jiangxi province March 1, 2010.

Credit: Reuters/Stringer

LONDON (Reuters) - Copper steadied on Thursday as a commitment by the U.S. Federal reserve to stimulate growth, and encouraging data from the United States as well as from top metals consumer China were offset by a stronger dollar.

Benchmark copper on the London Metal Exchange (LME) ended at $7,815 a metric ton (1.1023 tons), from a close of $7,817 on Wednesday.

Prices earlier fell to their lowest level since early September at $7,788.75, and were on track for a 2 percent loss this week, the third consecutive week of declines.

Lifting sentiment in the market, the U.S. central bank on Wednesday made no changes to its plan to purchase $40 billion in mortgage-backed debt per month to push interest rates lower and spur a stronger recovery.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, a sign the labor market is healing, while new orders for long-lasting manufactured goods increased during the month.

On the housing front, contracts to buy previously owned U.S. homes rose far less than expected in September, but the data continued to point to an improving tone in the housing market.

But gains in metals were offset by a stronger dollar, which makes commodities priced in the U.S. unit more expensive for holders of other currencies.

"The U.S. data has been improving. We think the U.S. housing market will be one of the real bright spots in the U.S. economy over the coming year and that could lead to a more sustained recovery in the economy and that will certainly be good for copper," said Nic Brown, head of commodity research at Natixis.

Also helping sentiment was data on Wednesday showing conditions had improved a little for U.S. and Chinese manufacturers.

Worries about weak spot demand for industrial metals from China and uncertainty about the outlook for next year limited gains, however.

"The manufacturing data is not back to the level we would like, but it was higher month-on-month, so at least things aren't deteriorating. All the recent data has been supportive, but there is nothing out there that would make you want to turn bullish straight away," Societe Generale analyst Robin Bhar said.

"Although the feeling is that the economy is bottoming out and there should be better growth and better demand over the coming months, it may not be until early next year that we actually see stronger buying interest."

The euro zone sovereign debt crisis continued to depress economic growth in the area, weighing on sentiment in the metals market. Businesses suffered another dismal month in October, suggesting the region's economy may be headed for a deeper recession than expected.

TOO TEPID TO HELP

Many worried that a tepid rebound in China's economy may not be enough to drive up demand for base metals.

China's Purchasing Managers Index in September pointed to the world's second-largest economy making a slow, steady recovery from its weakest period of growth in three years, with new orders and output at their highest in months.

But analysts noted that the headline reading of 49.1 was still below the 50-point mark that separates expansion from contraction.

"The Chinese economy looks set to improve slightly in the fourth quarter, which will also lift copper demand and put a floor on base metal prices," said China Futures Co analyst Yang Jun.

"But for demand to rise significantly, we need to see a clear and sustained improvement in China's manufacturing PMI numbers above 50."

In industry news, Indonesia's top tin miner, PT Timah (TINS.JK), sees its 2012 refined tin production dropping around 21 percent to 30,000 metric tons as it adjusts to new regulations on ore concentrate, the company said.

The news helped lift benchmark tin on the LME. It ended at $20,400 from Wednesday's close of $20,275.

In other metals, aluminum closed at $1,939 from $1,938.50 at Wednesday's close, while battery material lead ended at $2,005 from $2,008. Lead earlier fell to its lowest level since early September at $2,002.75.

Zinc closed at $1,838 from $1,855 while nickel ended at $16,125 from $16,390, its lowest level since early September.

(Additional reporting by Carrie Ho in Shanghai; editing by Jane Baird and Keiron Henderson)

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