Copper off 14-month lows

Copper rebounded from 14-month lows hit earlier on Monday following stronger-than-expected manufacturing figures from the United States, but lingering worries about the eurozone debt crisis and concerns about demand from top consumer China continued to put pressure on prices.
Benchmark copper on the London Metal Exchange dropped to a session low of $6,635 a tonne, its weakest since July 21, 2010. The metal, used in power and construction, later pared losses to end at $6,990, from Friday's close of $7,018.50, helped by data showing factory activity expanded at a faster pace than expected in September, a sign of resilience in the manufacturing sector.
Despite the upbeat US manufacturing data, factory activity in Europe and Asia slumped in September to levels not seen since the depths of the financial crisis as export demand dropped, reinforcing fears of a return to recession. Even in China, which reported a slight uptick in its official PMI which typically rises in September, this year's increase was smaller than the average.
"We have seen China de-stocking copper for most of the year with a gradual pick-up in imports, but at the same time we also see increased stress in the Chinese housing market." said Bjarne Schieldrop, chief commodity analyst at SEB. "The worries about a less soft landing in China's economy are increasing, in addition to stress in Europe and the United States."
The metals market had been anticipating China's return after it has run down inventories of base metals, particularly copper, but a slowdown in the auto and housing sectors is seen capping demand. "We don't believe it (China) can step in and give the commodity markets the recovery it saw in 2008 ... (China is) overall positive but not fantastically positive ... Chinese growth rates remain healthy but at lower rates," Paul Robinson, group manager non ferrous metals at CRU told a London Metal Exchange (LME) seminar.
Keeping concerns about the eurozone debt crisis alive, Greece will miss a deficit target set just months ago in a massive bailout package, according to government draft budget figures released on Sunday, showing that drastic steps taken to avert bankruptcy may not be enough. Currency exchange rates also weighed on metals. The euro hovered near a eight-month trough against the dollar on worries about the health of the eurozone's banking sector amid mounting concerns about a Greek default. A stronger US currency makes dollar-priced commodities costlier for holders of other currencies.
Some other metals performed better than copper, with aluminium ending at $2,203 a tonne from $2,163 at the close on Friday. "The recent divergence between the fall in prices of copper and aluminium underlines the perception that commodities investors always turn to marginal cost of production in order to guess the potential losses during a market downturn," said Metal Bulletin Research analyst Kamil Wlazly. "The price of aluminium is already at levels below its average marginal cost of production of close to $2,500 per tonne. This limits a further downside due to the potential of supply cutbacks."
Zinc and nickel were also supported by high production costs in comparison with their trading prices.
"For some of the metals such as aluminium, zinc and to some extent nickel, there is a certain risk that some production will be curtailed in the next few months," said Gayle Berry, an analyst at Barclays Capital. "These will prevent their prices from falling as much as other metals that are trading much above their cost of production." Nickel rose more than 7 percent to end at $19,025 a tonne from $17,600 on Friday, with traders attributing the move to short-covering and comments from nickel producer Norilsk, which said output might drop this year because producers are losing money at current prices.
Zinc, used to galvanise steel, closed at $1,893 a tonne from $1,860 Friday's close. Tin ended at $20,500 from $20,350 while battery material lead closed at $1,961 from $1,985.