METALS-Copper falls to 3-week low on fears of gloomy China data

Tue Jul 30, 2013 12:21pm EDT

* Analysts expect China manufacturing contracted in July

* CTAs driving copper market lower, hoping for more losses

* Investors cautious ahead of Fed meeting

* Nickel weak as inventories rise

By Silvia Antonioli and Eric Onstad

LONDON, July 30 (Reuters) - Copper slid to its weakest in nearly three weeks on Tuesday as expectations of weak manufacturing data from top consumer China dimmed prospects for growth in metals demand.

Benchmark copper on the London Metal Exchange (LME) lost 2.1 percent to close at $6,735 a tonne, the lowest since July 10.

Traders said commodity trading advisors or CTAs, which usually make trades based on technical trends and momentum, had driven the recent move lower, capitalising on market worries about Chinese growth as chart levels were breached. The metal is down 15 percent on the year.

The bears were hoping to force a break below the lowest level hit so far this year of $6,602 a tonne, touched on June 25, they added.

Investor sentiment turned negative on expectations that activity in China's vast manufacturing sector may have contracted in July for the first time in 10 months, a Reuters poll showed.

Purchasing managers' indexes (PMI), barometers of the manufacturing sector, will be released on Thursday. Readings above 50 indicate expanding activity while those below point to contraction.

"Sentiment right now is not very much in favour of commodities. The whole industrial metals complex is under pressure and it is very much about China," Commerzbank analyst Eugen Weinberg said.

China's July PMI data is expected to produce the lowest reading since September 2012, he said.

"It could be below 50, which would point to contraction of the economy and this would weigh especially on industrial metals given China's importance for these markets," Weinberg said.

China accounts for about 40 percent of global copper consumption.

Investors were also cautious ahead of a U.S. Federal Reserve meeting that may provide clues on the timing of a stimulus rollback, which could cut global commodities demand.

Metals were also pressured by a stronger dollar, which makes commodities priced in the U.S. currency more expensive for buyers in other countries.

The dollar hit session highs against the euro as investors pared back long positions on the euro heading into the Federal Reserve's policy announcement on Wednesday.

BELOW THE SURFACE

Copper inventories on the Shanghai Futures Exchange, however, were telling a different story that reflected increased physical demand, falling to the lowest in more than 10 months, weekly stocks data showed on Friday.

"Under the surface the situation is better than many fear. It is the sentiment that is dragging prices, not demand weakness, because the weakness is already priced in," Weinberg said.

Among other metals, nickel, mainly used to produce stainless steel, also extended losses, pressured by high inventories, over-production and surpluses. It fell 1.2 percent to close at $13,525 a tonne.

"Nickel is the metal that continues to see selling ... looking to re-test the lows of $13,300 seen earlier this month. LME inventory for nickel continues to rise," analyst Walter de Wet at Standard Bank said in a note.

LME nickel stocks have more than doubled since the beginning of last year to 200,790 tonnes.

Three-month aluminium ended at a three-week low of $1,776 a tonne, down 1.2 percent, and tin lost 0.75 percent to $19,775.

Zinc shed 0.5 percent to close at $1,836 a tonne, and lead gave up 1.7 percent to finish at $2,030.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.