Copper prices touched a one-month low on Monday as weak manufacturing data from China reinforced concerns about demand in the world's top user, but later recovered as the market noted stronger export orders and a lower dollar. Benchmark copper on the London Metal Exchange hit a low of $5,086.50 a tonne. The metal, used in power and construction, ended up 0.3 percent at $5,125 a tonne.
The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) came in at 48.3 in October, showing factory activity shrinking for the eighth consecutive month. However, the export component rose to 50.7, the first expansion since June. "The data were encouraging, but the recovery is going to be a slow process. It suggests some of the easing measures are starting to help stabilise the economy, but more is needed," said Societe Generale analyst Robin Bhar.
A lower US currency makes dollar-denominated commodities cheaper for non-US firms. It is a short-term relationship used by funds to generate buy or sell signals. That is why the market is also focused on the likelihood of a rise in US rates in December, which could strengthen the dollar and weigh on commodities. "We expect that if and when the Federal Reserve decides to tighten, the pass-through effect on copper from the dollar channel will exist but be limited," Barclays said in a note. It added that fundamentals, such as the health of the global economy and the strength of Chinese demand, were likely to play a bigger role.
Clues to Chinese demand will come next week with the release of industrial production and investment data. "We should see a bottoming of copper prices between 5,000 and 5,500, that is probably the best you will get," said Julius Baer analyst Carsten Menke. "We are still talking about a market which is well supplied." Traders said a stronger new orders index in a survey of US manufacturers by The Institute for Supply Management was encouraging, but that China would remain the main focus for metals markets.
Three-month aluminium gained 0.9 percent to close at $1,492 a tonne. But traders expect it to revisit the six-year low of $1,460 hit last week. The metal, used in transport and packaging, is under pressure from expectations of large surpluses this year and next, mainly due to Chinese overproduction and exports. Zinc lost 1.5 percent to $1,684 a tonne, lead rose 0.2 percent to $1,698, tin fell 1.1 percent to $14,825 and nickel gained 0.6 percent to $10,120 a tonne.
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