Copper slipped on Monday alongside Chinese equities on news the country's manufacturing sector shrank at the fastest in more than three years, reinforcing fears of weaker demand in the top consumer of industrial metals. Benchmark copper on the London Metal Exchange ended down $4,560 a tonne from $4,561 at the close on Friday. The metal used in power and construction earlier touched a session low of $4,496.50.
China's official Purchasing Managers' Index (PMI) fell to 49.4 in January from 49.7 in December. It is the weakest reading since August 2012 and marks the sixth consecutive month of contraction. The Shanghai Composite Index eased 1.8 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 1.5 percent.
"After the Chinese PMI data it's not surprising to see copper and other industrial metals and China equities under pressure," said Commerzbank analyst Eugen Weinberg. "The market is very much driven by sentiment at the moment, but we are likely to see more supply cuts this year, many mines are operating at unprofitable levels."
Weinberg also sees as a positive China's imports of refined copper surging 34.4 percent in December from a year ago to a record 423,181 tonnes. But others doubt demand is stronger and instead suggest fears of further yuan devaluations have convinced Chinese consumers and traders to stockpile the metal.
A weaker yuan makes commodities priced in dollars more expensive for local Chinese firms. China's week-long Lunar New Year holiday which starts on February 8 is expected to subdue activity in metals markets. Industrial metals also came under pressure after data from the Institute for Supply Management said its index of US factory activity showed a fourth straight month of contraction, traders said. Three-month aluminium was untraded at the close, but bid up at $1,521, zinc traded up 1.5 percent to $1,648 and lead gained 0.8 percent to $1,732 a tonne.
Tin was down 0.5 percent at $14,800 a tonne. The soldering metal is expected to come under further pressure after China's largest tin producer, Yunnan Tin, said the government had not yet decided on a plan to stockpile tin. Nickel fell 2.3 percent to $8,460 a tonne.
Traders said Russia's Norilsk Nickel producing more of the stainless steel ingredient was weighing on prices. "During times of commodity price weakness it is typical that mining companies increase production in order to lower unit costs," Investec analysts said in a note. "Such behaviour serves to exacerbate the oversupply, thus delaying any recovery in metal prices. We are now in the "dog eat dog" phase where only fittest will survive."
Comments
Comments are closed.