September 20, 2012 / 4:16 PM / 7 years ago

METALS-Copper drops after weak data from China, euro zone

* China manufacturing activity down for 11th month in a row
    * Euro zone business decline steepens unexpectedly - PMI
    * Worries about queue to access zinc in warehouses
    * Coming up: Weekly Shanghai metals inventory data Friday

    By Chris Kelly and Harpreet Bhal
    NEW YORK/LONDON, Sept 20 (Reuters) - Copper prices shed 1 percent on
Thursday, retreating from a 4-1/2 month high hit the previous session on signs
that global economic weakness may keep pressuring demand for industrial metals.
    The day began with China's flash purchasing managers index showing the
country's manufacturing sector contracted for an 11th month in a row in
    "The September PMI Flash pointed to continued weak industrial activity and
is clearly supportive of the view that the Chinese economy is going to stabilize
rather than re-accelarate over the third quarter, and into Q4," said Nicholas
Snowdon, analyst with Barclays Capital in New York.
    "It constrains the view that you're going to see a near-term uptick in
Chinese end-use demand conditions."
    Later, European and U.S. data added weight to metals prices, as the downturn
in the euro zone's service sector steepened this month at the fastest pace since
July 2009 and U.S. manufacturing closed out its weakest quarterly growth 
rate in 3 years in September.  
    "That's certainly going to limit how bullish the market can get,
irrespective of the supportive policy action from the ECB and Fed," Snowdon
    COMEX copper for December delivery fell by 5.50 cents or 1.4 percent
to settle at $3.7590 per lb, after dealing between $3.7335 and $3.8080.
    On Wednesday, it touched its loftiest level since early May at $3.8395.
    On the London Metal Exchange (LME), three-month copper dropped $85
to end at $8,265 a tonne.
    It hit its own 4-1/2-month peak at $8,422 on Wednesday.
    Copper has risen 13 percent since early August on optimism over bond buying
by the European Central Bank, a third round of quantitative easing, or QE3, in
the United States and stimulus measures in China. But the metal remains shy of
yearly peaks of $8,765 a tonne and $4.02 per lb, hit in February.
    "For copper, the market was stalling for more than three months in a tight
range. Then you had QE3 and things improved. But in the long-run you need
fundamentals to recover and we need to see an improvement in China," said Andrey
Kryuchenkov, analyst at VTB Capital. 
    "I am still upbeat on China's prospects towards the end of the year and I
think they will stabilise their growth to maybe below 8 percent. And that is
important for metals." 
    China's PMI number, the first glimpse of industrial conditions in September,
points to a month in which a slide was halted but not reversed, Singapore-based
analyst Bonnie Liu of Macquarie said.
    "We do see some things getting better from September as orders filter down
into the market. The macro environment is improving and so are orders for
cement, steel and copper," she said.
    "Still prices are not going to move up much because that demand is not that
strong ... it's only a seasonal pick up for the fourth quarter."
    In other metals, tin slid nearly 5 percent at one point to $20,441 a
tonne, as chart-based selling kicked in when prices pierced support at the
200-day moving average near $20,800. Tin did not trade at the close, but was bid
at $20,550 a tonne, down 4 percent.
    Tightness in the nearby spreads eased as the September contract expired
after shorts had to scramble on Wednesday to cover, facing off against a large
    The "tom/next" spread , which represents the cost of rolling over
an expiring position to the following day, spiked as high as $25 on Wednesday,
the most expensive in six months. It peaked at $10 on Thursday and was last
quoted back to zero.
    In zinc, another 100,000 tonnes of the metal were cancelled, or earmarked
for delivery, in New Orleans warehouses, increasing to 37 percent total
cancelled material. .
    "U.S. zinc stocks have the potential to become difficult to access if a
substantial zinc queue was to build up in New Orleans, especially if material in
Detroit was also caught in an aluminium queue," analyst Nic Brown at Natixis
said in a note.
    "This could push the zinc market into the same dynamic as the aluminium
market, with ever-rising physical premiums reflecting the lengthening wait-times
inherent in accessing stocks held at the larger warehouses."
    Three-month zinc ended off $13.50 at $2,110 a tonne.
 Metal Prices at 1819 GMT
  Metal            Last      Change  Pct Move   End 2011   Ytd Pct
  COMEX Cu       376.90       -4.50     -1.18     343.60      9.69
  LME Alum      2109.00      -29.00     -1.36    2020.00      4.41
  LME Cu        8265.00      -85.00     -1.02    7600.00      8.75
  LME Lead      2264.00       -7.00     -0.31    2035.00     11.25
  LME Nickel   17890.00      135.00     +0.76   18710.00     -4.38
  LME Tin      20550.00     -850.00     -3.97   19200.00      7.03
  LME Zinc      2110.00      -13.50     -0.64    1845.00     14.36
  SHFE Alu     15700.00     -155.00     -0.98   15845.00     -0.92
  SHFE Cu*     59310.00    -1130.00     -1.87   55360.00      7.14
  SHFE Zin     15535.00     -285.00     -1.80   14795.00      5.00
 ** Benchmark month for COMEX copper
 * 3rd contract month for SHFE AL, CU and ZN
 SHFE ZN began trading on 26/3/07
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