Copper hit a one-week low on Monday as disappointing manufacturing data from the United States reinforced fears of weak demand growth from the world's largest economy and as the dollar strengthened. Earlier, the metal used in power and construction rose to a four-month high of $9,905 a tonne on expectations that US lawmakers were likely to pass a deal to raise the country's debt ceiling, avoiding a default, and cut about $2.4 trillion from the deficit over the next decade.
Benchmark copper on the London Metal Exchange ended at $9,650 a tonne from $9,820 at the close on Friday. Earlier on Monday it touched $9,625 a tonne, its lowest since July 25. The pace of growth in the US manufacturing sector slowed more than expected in July, according to the Institute for Supply Management's (ISM) index, which showed it fell to 50.9 from 55.3 in June. The consensus was for a figure of 54.9.
"The market did react in a swift knee-jerk reaction to the yet again extremely weak US data," said Eugen Weinberg, commodities analyst at Commerzbank, adding that the stronger dollar was also behind losses in industrial metals. "However the market seems to be weiging the chances of (further US monetary easing) and the positive outcome of the expansive monetary policy on the metals." Much of the money pumped into financial system has found its way into copper and other commodities, pushing up prices.
Also helping to boost copper market sentiment was a strike at the world's No 1 copper mine, Chile's Escondida, which pushed into an 11th day, but the risk of it spreading appeared limited after a weekend walkout at the No 3 mine, Collahuasi, lasted just 24 hours.
Escondida and its workers remain deadlocked over a bonus demand, but the miners' union said that was the only remaining sticking point, raising expectations of a possible solution to the strike at a mine that extracts 7 percent of the world's copper.
"The tentative deal to raise the debt ceiling in the US, plus no resolution of the Escondida strikes, plus a 24-hour strike at Collahuasi: there is a lot going on supporting copper and other metals," said Credit Agricole analyst Robin Bhar. "Investors are looking to hedge economic uncertainties by betting on tangible assets; they want exposure to emerging economies and they are looking for an inflation hedge." In a Reuters poll last month, a consensus of analysts forecast a 343,150 tonnes deficit for copper this year but recent strikes at the Chilean mines are likely to have exacerbated the tightness.
Inventories of copper in LME-registered warehouses at above 466,000 tonnes are more than a third higher than in the middle of December last year. Aluminium was helped by smelters in China's Henan province, which face electricity supply cuts that could hit output at a time of high domestic prices if summer power demand continues to surge. China is the world's largest producer of aluminium used in transport, packaging and construction. It is also the world's largest consumer of copper and aluminium.
Aluminium ended at $2,585 per tonne from $2,624 and nickel at $24,625 from $24,995 on Friday. Tin closed at $28,100 from $28,100 and zinc, used in galvanising, changed hands at $2,461 from $2,490 Friday's close. Battery material lead ended at $2,565 a tonne from $2,613.
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