Copper climbed on Tuesday as the dollar tumbled, but gains were limited by expectations of softer demand from China, which were reinforced by weak manufacturing activity in the world's largest consumer of industrial metals. Benchmark copper on the London Metal Exchange ended higher at $6,040 a tonne from $6,024 on Monday, when the metal used in power and construction fell to $5,985, its lowest since April 24.
A lower US currency makes dollar-denominated industrial metals cheaper for non-US firms, a relationship used by many short-term traders. China accounts for about half of global consumption estimated at around 22 million tonnes this year. Its manufacturing sector barely grew in May, while export demand shrank.
"People are waiting to see what Chinese demand looks like. I think we're in for some weakness," said Stephen Briggs, metals strategist at BNP Paribas. "But demand is only half the equation. The other half is supply and we are still in the midst of a five-year period of above trend growth in copper production." Some analysts expect copper to also come under pressure from rising stocks in LME registered warehouses over coming months.
Clues to China's growth prospects over the next couple of weeks will come from trade, loans, investment and industrial production data. Three-month aluminium closed lower at $1,740 from $1,762 at Monday's close. It is under pressure from higher supplies due to metal coming out of financing deals and Chinese exports.
But tumbling premiums in the physical market are making China's exports less profitable. "Premiums have decreased to a low enough level to begin stemming some of the flow of remeltable Chinese aluminum," J.P. Morgan said in a note. "We expect reported Chinese exports of aluminum products to slow in May and June." Zinc was softer at $2,158 from an earlier two-month low of $2,139 and Monday's close at $2,165. Lead ended at $1,927 from Monday's last bid at $1,930.
"There's no real shortage of lead, so a recovery is unlikely," a trader said. "But zinc could be different because of smelter closures and the possibility of tighter supplies." Tin ended up at $15,530 from $15,370 and nickel rose to $13,050 a tonne from Monday's $12,985.