SINGAPORE: London copper firmed Monday on technical buying, but remained near three-year lows after data showing that growth in China's vast manufacturing sector contracted in June underlined sluggish prospects for metals demand.
Reinforcing worries about tepid second-quarter growth in the world's top metals consumer, China's official purchasing managers' index (PMI) slipped to 50.1 in June from 50.8 in May. A private sector report also showed factory activity reached its lowest in nine months.
"I expect copper demand to weaken over the next several months," said Chunlan Li, a Beijing-based analyst with consultancy CRU.
She pointed to a slowdown after the seasonally strongest second quarter and lower monetary supply in China in the second half as the two main factors likely to crimp demand.
"Copper tube demand started decreasing from mid to late June and we have also seen some impact on the wire market," she added.
Three-month copper on the London Metal Exchange traded at $6,774.25 a tonne by 0322 GMT, up by 0.36 percent from the previous session when it closed little changed.
Copper ended June down more than 7 percent, its biggest monthly loss since Sept 2011. Prices sank to $6,602 a tonne on June 25, the lowest level in three years.
Traders said the latest price strength was technical in nature and expected it to prove fleeting. "We might see a short squeeze rally to $7,000 but the bounce should be sold into," said a trader in Shanghai.
Easing nearby worries over liquidity, China's key short-term lending rate on Monday fell to its lowest level since the peak of a cash crunch last month, while stocks showed signs of stabilisation as traders shifted their focus back to the economy.
The most-traded October copper contract on the Shanghai Futures Exchange climbed by 0.87 percent to 48,810 yuan ($8,000) a tonne.
Investor sentiment continues to sour towards commodities and to copper in particular. Hedge funds and money managers boosted their short positions in Comex copper by 3581 contracts to 32,599 contracts, the most since early April, a report by the Commodity Futures Trading Commission (CFTC) showed on Friday.
In one bright spot for copper demand, US consumer sentiment improved in late June, ending the month close to a near six-year high set in May, as optimism among higher-income families rose to its strongest level in six years, a survey released on Friday showed.
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