Copper firmed on Tuesday on output cut plans in top metal user China, but gains were capped by data showing China's factory activity slowed in November, underlining the headwinds facing demand. Ten major copper smelters in China, which consumes nearly half the world's copper, said they would cut output by 350,000 tonnes next year, and also asked the government to buy metal for its strategic stockpile.
The news follows similar moves already announced by China's nickel and zinc makers. "These factors taken together can at least stem the (copper price) slide ... but the market wants to see evidence that it's happening and not just a verbal intervention from producers," said Julius Baer analyst Carsten Menke. "In the medium to longer term, metals are well supplied and we don't see any reason for a lasting recovery in prices. You still have headwinds from the (China) manufacturing and property markets," he added.
Manufacturing activity in China hit a three-year low in November, an official survey showed, supporting the case for more accommodative policies. A private survey showed November manufacturing contracted at a slower pace than in October. Three-month copper on the London Metal Exchange closed up 1 percent at $4,632 a tonne. Copper prices slumped 10 percent in November, the biggest monthly loss since January, and have fallen nearly 27 percent this year.
BHP Billiton said it plans to lower production costs and increase output at its copper business, remaining optimistic about rising demand in the long term. "Despite all the concern producers are voicing about low prices, they are still not reducing output fast enough for the market. Instead, the emphasis seems to be on lowering costs," said Ed Meir, analyst at INTL FCStone.
But helping copper, the dollar fell as euro bears had second thoughts about expectations of European Central Bank easing later this week. A falling dollar makes dollar-priced metals less costly for non-US investors. Still, sentiment towards copper remains poor overall. Hedge funds and money managers added to their bearish or sell position in copper in the latest week, data from the US Commodity Futures Trading Commision showed.
Copper may be pulled downwards with the December options expiry on Wednesday, given the pool of open interest around $4,500 puts, said a trader in Singapore. "December options expiring tomorrow might also have a magnet pull for copper," the trader said.
Stainless steelmaking ingredient nickel rose 1.1 percent to end at $8,980 a tonne while zinc, used to galvanise steel, finished up 0.8 percent at $1,575. Both metals have been hurt by the severe slowdown in China's steel sector, and have been unable to capitalise much on planned output cuts. Aluminium closed 1.6 percent firmer at $1,469 a tonne, lead added 0.2 percent to $1,649 and tin rose 0.5 percent to $15,125.
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