SINGAPORE: London copper edged up on Thursday after data showed top copper consumer China's manufacturing sector grew faster than forecast in February, although the modest gains showed investors needed greater motivation to take the market higher.
Copper has risen 12 percent this year, but analysts say Chinese demand has to recover strongly to justify a further increase in prices. While China's latest manufacturing data beat expectations, some think it could discourage more monetary easing by Beijing, which could dent copper demand.
China's official purchasing managers' index rose to 51.0 in February from 50.5 in January, the highest since September, as export orders rose for the first time in four months, strengthening hopes the world's No. 2 economy can avoid a hard landing.
"This is also telling us that there's less possibility for China to loosen monetary policy further," with the economy getting back on its feet, said Bonnie Liu, a commodity analyst at Macquarie in Shanghai.
With the arbitrage window staying shut, giving the Chinese no incentive to import copper, and liquidity still tight, Liu said China's imports of refined copper may drop to around 250,000 tonnes in February from 335,480 tonnes in January.
China cut banks' reserve requirement ratio for the first time this year in February to spur economic growth, and economists expect more such moves are in the pipeline.
A separate PMI reading by HSBC showed China's factory output edged up in February but stayed in contractionary territory with new export orders at eight-month lows.
Three-month copper on the London Metal Exchange rose 0.1 percent to $8,510.50 a tonne by 0306 GMT, after falling more than 1 percent on Wednesday.
The most-traded May copper contract on the Shanghai Futures Exchange slipped 0.9 percent to 60,520 yuan ($9,600) a tonne, chasing losses in London in the previous session.
Wednesday's scramble out of risk assets, including copper, was fuelled by US Fed chief Ben Bernanke's comments that the US economy needs to strengthen, to cut the still high jobless rate further, and the absence of indications of more Fed bond purchases.
That countered the positive impact from the half a trillion euros in additional liquidity the European Central Bank injected into the financial system to help fight a nagging debt crisis.
But a continued draw in LME copper stockpiles suggests "that physical demand is higher than many market participants believe," Credit Suisse said in a note.
"We expect the price path in the coming days to be volatile. Nevertheless, price risks are to the upside," the bank said.
Copper stocks in warehouses monitored by the LME fell to a fresh 2-1/2 year low of 296,425 tonnes on Wednesday, down 2,425 tonnes. The ratio of cancelled warrants, material tagged for delivery, to total stock stood at 31.69 percent, mostly in US locations.
In contrast, stockpiles of copper at warehouses monitored by the Shanghai Futures Exchange remained near 10-year highs at more than 216,000 tonnes, despite dropping slightly last week for the first time since early December.
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