Copper hits 2-month low as U.S. election, China in focus

LONDON Mon Nov 5, 2012 12:29pm EST

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 hit two-month lows on Monday as the U.S. presidential election, a leadership transition in China and two central bank meetings this week kept risk-prone investors on the sidelines of financial markets.

Victory in Tuesday's U.S. election for Republican contender Mitt Romney would pave the way for more deregulation and tax cuts, while a second term for President Barack Obama would probably bring bigger public investment in education, research and infrastructure, most analysts say.

"From a sentiment point of view and fundamental perspective, I think investors will wait and see what happens with the election. It looks like that is going to be quite a close call," said Barclays analyst Gayle Berry.

"That's the nearest thing in the horizon that might spark something in either direction (on metals prices)."

China's once-a-decade leadership transition event, the 18th Communist Party Congress, is scheduled to start on Thursday, a day that the European Central Bank and the Bank of England also will hold policy meetings.

Three-month copper on the London Metal Exchange closed at 7,650 per tonne, 0.2 down from its close at $7,665.50 on Friday.

The metal used in power and construction, had hit a session low of $7,596, its lowest since September 5.

"We find that close U.S. presidential election results typically deliver positive gains for the S&P500 .SPX, while an incumbent remaining in power has tended to be constructive for the U.S. dollar," Deutsche Bank said in a research note.

The dollar was broadly firmer, which usually has a negative effect on dollar-priced metals because it makes them more expensive for holders of other currencies.

"In terms of China, we suspect initiatives to boost growth will come later than the financial market would like, and this will sustain the shaky foundations to price support across the industrial metals complex," Deutsche Bank said.

An announcement by China's central bank in its latest policy report that it would prioritize supporting the economy above other needs only served to affirm expectations that recovery in the Chinese growth engine is feeble at best. China is the world's largest consumer of copper, used extensively in construction and power.

WEAK CONSUMER DEMAND

A private survey of China's growing services sector slipped in October, with weaker-than-expected new orders injecting a note of caution after three previous manufacturing surveys for October showed the world's second largest economy regaining momentum.

The HSBC Purchasing Managers Index for China's services sector released on Monday showed the index slipped to 53.5 in October from September's four-month high of 54.3, as higher costs and greater competition squeezed margins.

"The HSBC figures weren't particularly brilliant and Asian markets were generally subdued as a result of the twin effects of the U.S. election and the Chinese leadership change so generally the market has been very much on the defensive," a London-based trader said.

"There is uncertainty around what is going to happen next and the euro is falling, and in the absence of any other stimulus the market is just drifting a bit weaker. It is a bit oversold down at this sort of numbers but there is no real investment coming into the market right now."

Also denting sentiment were copper stocks in Shanghai Futures Exchange-monitored warehouses, which were at a six-month high at 197,937 tonnes on Friday, after rising 31 percent since September 7.

Three-month aluminum closed at $1,906 per tonne in rings from $1,925 at the close on Friday, and nickel at $15,900 from $15,970.

The two metals were pressured by a decision by the Indonesian supreme court to scrap a May 6 government ban on the export of unprocessed minerals, including nickel ores and bauxite.

Three-month zinc finished at $1,869 from $1,874 at the close on Friday, while tin ended at $20,100 from $20,160 and lead at $2,127 from $2,095.

(Editing by William Hardy and James Jukwey)