Copper up on risk appetite, PMIs curb gains

LONDON: Copper rallied on Wednesday on renewed risk appetite and underpinned by supply constraints although a decline in euro zone manufacturing conditions tempered gains.

Benchmark copper on the London Metal Exchange traded up 2.5 percent at $7,915 a tonne at 1059 GMT, from $7,730 a tonne on Tuesday when it fell by more than three percent.

The metal rallied by a quarter last month from a 2011 trough of $6,635 to peak above $8,200 a tonne last week.

Copper has ricocheted more violently than other commodities because of its high correlation to the economic cycle and is responding to uncertainty over the global economic outlook, said BNP Paribas analyst Stephen Briggs.

"As sentiment ebbs and flows about economic prospects you would expect them (industrial metals) to be the most exposed to swings in sentiment," he said, noting worsening in European manufacturing sentiment data on Monday.

"The new orders element showed a sharp further deterioration so it is a concern...(but) the rally overnight is just the market deciding that yesterday's story about Greece wasn't quite as bad as first feared because of the intricate politics this involves."

World stocks and the euro edged up on Wednesday after a rollercoaster week, as investors hoped for comfort on the weak US economy and troubled euro zone from meetings of the US Federal Reserve and Group of Twenty leaders.

Greece's prime minister George Papandreou won the backing of his cabinet on Wednesday to hold a referendum on a 130 billion euro bailout package, a decision that had sent markets into a tailspin in the previous sessions.

Earlier, data showed the European downturn in euro zone manufacturing in October was even deeper than previously reported, according to business surveys showing how severely the currency union's debt crisis has choked new factory orders.

The figure rounded out a string of manufacturing reports this week that have on balance underpinned copper's demand prospects.

On China, the closely watched HSBC flash PMI new orders report suggested improvement in small and medium enterprises while a similar report from the US showed slowing growth but also a pick up in new orders.

Also underpinning copper was a rebound in the euro against the dollar, and options expiry for the LME's November copper contract, traders said.

Copper prices tend to gravitate towards large pools of open interest.

A weaker US currency makes dollar-based commodities cheaper for holders of other currencies.

CHINA GROWTH

Demand for refined metal in top copper consumer China is expected to grow 6.4 percent in 2012, a slow down from this year's 8.5 percent growth rate, a senior analyst at state-backed research firm Antaike said on Wednesday.

Real consumption of refined copper may rise to 7.85 million tonnes in 2012, from 7.38 million tonnes expected in this year, Yang Changhua said.

China is the world's largest consumer of base metals, accounting for almost 40 percent of copper demand last year.

"China's demand may be somewhat weaker in 2012 but it will sustain global demand for commodities," said Caroline Bain, commodities analyst with Economist Intelligence Unit (EIU), EIU expect China to begin relaxing monetary policy early next year.

"China is believed to have run down stocks of base metals in 2011, which coupled with markedly lower global prices, could spark a rush of Chinese buying in early 2012," she said in a note.

Also supporting copper prices was another draw from LME-registered stocks and ongoing strikes at Freeport-McMoRan Copper & Gold Inc operations in Indonesia and Peru. Copper stocks have dropped around ten percent in the last month.

Copyright Reuters, 2011