Copper closed lower in Shanghai on Monday, following a weak performance in London in the previous session as investors braced for more economic doom and gloom that is painting a lacklustre demand picture. London copper futures steadied after Friday's 2 percent decline, but more weakness could be expected, analysts said, following a series of central bank meetings this week, and softer demand from Chinese buyers ahead of the Beijing Olympic Games.
Shanghai's October copper contract, the most active, fell 0.7 percent or 420 yuan to 61,020 yuan ($8,918) at the close, trading down towards last week's six-week low of 60,560 yuan. "Demand remains weak and that could continue for another month or two. We might have to wait until December to see a strong rebound in demand," a trader in Shanghai said.
"Credit is really tight in China right now and consumers are finding it tough going which has added to the big Olympic shutdown. So there is a chance we will break the recent lows, but we should will see support at 60,000 yuan." Spot copper in Shanghai fell to 61,800-61,850 yuan, from 61,970 yuan on Friday. London Metal Exchange three-month copper was flat at $7,900 a tonne at 0701 GMT.
"Conditions in base metals are likely to soften on the Olympics slowdown and seasonally weak demand," ANZ's senior commodity analyst Mark Pervan said. "Some bits and pieces out of the United States and Europe may also weigh." He said markets were waiting for interest rate decisions from a number of central banks, including the US Federal Reserve and the European Central Bank.
"Markets are expecting no change from the FOMC, so in that respect, it will probably be a non-event, but the ECB is also meeting so there will some focus on its rhetoric. If they soften their stance, we could see weaker metals prices," Pervan said.
Money markets are pricing in an 86 percent chance that the Federal Reserve will keep benchmark rates on hold at 2 percent. Friday's weak data - European manufacturing in contraction, followed by flat US manufacturing and weak non-farm payrolls and auto sales, painted a negative outlook for metals.
"Given that vehicle sales are a leading indicator of economic activity it points to economic activity in the United States that should remain sluggish for some time to come," Standard Bank, London, said in a report.
The discount for Shanghai copper versus London prices including China's 17 percent VAT, narrowed to 2,523 yuan a tonne, down from 2,698 on Friday. Shanghai zinc fell 0.9 percent or 130 yuan to 15,125 yuan while London zinc fell $5 to $1,835. "Zinc demand is also soft. We hear there is a lot of unsold domestic material lying around.
The change in taxes will only add to the domestic supply," the Shanghai trader said. China abolished the 5 percent rebate on super-high grade zinc exports from August 1, the country's State Administration of Taxation said last week. But the outlook from Australian zinc miners was positive. World zinc prices are likely to recover next year thanks to a looming supply shortfall, world No 2 zinc miner Oz Minerals Ltd said at an industry jamboree in Western Australia.
Oz Minerals, the result of a merger Australian miners Oxiana Resources and Zinifex, said zinc prices could run as high as $1.40 a pound ($3,086 a tonne) next year due to stalled projects in South America and Indonesia.
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