SINGAPORE, Apr 24: London copper climbed on Wednesday as brighter corporate earnings sparked a rush by shorts to cover, although prices held close to one-and-a-half year lows after a string of weak manufacturing data hurt demand expectations.
While a drop in momentum in major North American, European and Asian economies capped prices, expectations that this would lead to more quantitative easing measures from global central banks ensured there was no renewed selling pressure on riskier assets, such as shares and metals.
Three-month copper on the London Metal Exchange rose 0.51 percent to $6,905 a tonne by 0324 GMT, snapping a three-day losing streak but still within sight of an 18-month trough of $6,762.25 a tonne plumbed on Tuesday after weak data.
The most-traded August copper contract on the Shanghai Futures Exchange rose by 1.16 percent to 49,700 yuan ($8,000) a tonne. It hit its lowest in almost three years at 48,460 yuan a tonne in the previous session.
‘PMI data yesterday wasn’t as good as people expected and so metals have taken some pressure from that, and from gold,’ said Bonnie Liu, an analyst with Macquarie in Shanghai, referring to the recent plunge in gold prices to their lowest in over two years that had sparked a commodities sell-off.
China and Germany both lost a step in April, with growth in Chinese factories slowing to a crawl as export demand dwindled and the euro zone’s largest economy seeing its business activity decline for the first time in five months.
‘Still, demand from cable and from home appliance sectors is running okay and order books are also fine. Bonded inventory in China and Shanghai exchange stocks have been coming down. We may see prices go up in the summer period as imports rise from May onwards,’ Liu added.
China is the worlds’ biggest consumer of copper, accounting for around 40 percent of refined demand. Bonded stocks in Shanghai had dropped to 7-month lows by mid month, and have since fallen further, traders said.
Fears of a Chinese economic hard-landing have eased but recent disappointing data underscored risks of slower-than-expected growth in the world’s second largest economy, fund managers said at the Reuters FX Summit.
The poor PMI readings are bad news for commodities as they indicate that second-quarter demand could turn out softer than initially anticipated, Credit Suisse said in a client note.
‘If today’s U.S. Durable goods orders and the German IFO index also disappoint, prices could lose further ground.’
BREAKING 2011 LOW?
Technical buying was driving up prices as a hugely short market rushed to cover positions and given the scale of momentum-based shorts such as commodity trading advisors (CTAs), prices could yet stage a vicious rally, traders warned.
‘It’s short covering. Everyone’s stopping out,’ a Singapore based trader said.
Copper is eyeing its 2011 low of $6,635 a tonne, opening the door to price levels last seen in July 2010, broker Sucden said in a note
‘That being said, the CTAS are very short now and the surprise could be to the upside, especially if Chinese central banks decide to weigh on the stimulus games like other central banks.’
(AGENCIES)
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