May 31, 2013 / 5:16 PM / 6 years ago

METALS-Copper slips on uncertainty ahead of China factory report

* Official China PMI seen barely expanded in May
    * New Grasberg mine incident supports copper price
    * Lead hits two-month high, spread goes into backwardation

    By Eric Onstad and Rosalba O'Brien
    LONDON, May 31 (Reuters) - Copper slipped on Friday, ending the week largely
unchanged, as investors closed out positions as a precaution ahead of what may
prove to be a bearish factory activity report from top metals consumer China. 
    China's official Purchasing Managers' Index, due out on Saturday, is likely
to show manufacturing activity barely expanded in May, according to a Reuters
    Many investors were not taking chances after an initial private-sector PMI
survey last week showed a contraction for the first time in seven months,
fuelling a sell-off in commodities and equities. 
    "I don't think anyone is too excited about going into the weekend
particularly long," said analyst George Adcock at broker Marex Spectron in
    "Unless you're a big fund specialising in what you think about China or
you're taking a much broader view, you'd likely want to go into the figures
neutral and see how the market reacts to them."
    Three-month copper on the London Metal Exchange ended down 0.3
percent at $7,299 a tonne, around the same price it closed at a week ago.
    Losses were cushioned after a second accident in less than three weeks
threatened to cause a prolonged closure at Indonesia's Grasberg, the world's
second-biggest copper mine.
    A driver was fighting for his life after his truck was covered in wet muck,
the mine's owner Freeport McMoRan said, prompting a union official to
call on members to stop work. 
    That followed a tunnel collapse at the remote Papua complex on May 15, which
killed 28 people and led to operations being suspended.
    On a montly view, Copper ended May around 3 percent higher, having rebounded
in the early part of the month from year's lows set in April, backed by supply
outages and improved demand in China. But a sustained rally has eluded the metal
due to doubts on the outlook for the global economy.
    "For a lot of investors, the fundamentals of copper are still not compelling
enough to give it a rally that's sustainable," said Sijin Cheng, commodities
analyst at Barclays Capital. "People are still trading it as a reflection of
their take on the macroeconomic environment which has been very confusing

    Lead was the best base metals performer, capping a strong week and
climbing 1.4 percent to $2,201 a tonne, the highest in more than two months. The
battery material was also the top LME performer of the month, climbing nearly 8
percent as inventories declined.
    LME lead stocks fell by another 2,750 tonnes on the day to
219,475 tonnes, bringing the decline to 31 percent this year. Lead inventories
currently available to consumers, however, are much smaller, since 76 percent of
stocks are cancelled, or earmarked for delivery.
    The shortage of lead supplies has pushed the benchmark spread into
backwardation - in which the cash price is at a premium of $6 a tonne over the
three-month price - for the first time in about six months.
    "The short end of the lead forward curve has shifted into backwardation ... 
which points to a tighter market situation," Commerzbank said in a note. "The
global lead market was already in supply deficit in the first three months of
the year."
    The weakest performer among base metals on Friday was tin, which
ended down 0.9 percent at $20,900.    
 Metal Prices at 1615 GMT
 Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
  Metal            Last      Change  Pct Move   End 2012   Ytd Pct
  COMEX Cu         3.31       -0.01     -0.32     365.25    -99.10
  LME Alum      1907.00       -1.00     -0.05    2073.00     -8.01
  LME Cu        7299.00      -21.00     -0.29    7931.00     -7.97
  LME Lead      2194.00       24.00     +1.11    2330.00     -5.84
  LME Nickel   14801.00        1.00     +0.01   17060.00    -13.24
  LME Tin      20850.00     -250.00     -1.18   23400.00    -10.90
  LME Zinc      1926.00       14.00     +0.73    2080.00     -7.40
  SHFE Alu     14830.00      165.00     +1.13   15435.00     -3.92
  SHFE Cu*     52890.00      520.00     +0.99   57690.00     -8.32
  SHFE Zin     14720.00      125.00     +0.86   15625.00     -5.79
 ** Benchmark month for COMEX copper
 * 3rd contract month for SHFE AL, CU and ZN
 SHFE ZN began trading on 26/3/07
0 : 0
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