Copper dips on gloomy US economic outlook

LONDON: Copper slipped on Thursday, extending losses from the previous session, after US jobs and manufacturing data came in below expectations and raised worries about the health of the global economy.

Benchmark copper on the London Metal Exchange traded at $9,050 a tonne in rings, from $9,102 a tonne at the close on Wednesday, but trading volumes were lower than usual due to a religious holiday that closed offices in most European countries.

The metal used in power and construction hit a session low of $9,005, its lowest in a week.

"I think a read-through of the weaker (manufacturing data), particularly in the US is the main driver at the moment," said Daniel Major, an analyst at RBS.

"The market is just very apprehensive, and it's waiting for payrolls data on Friday to confirm what has been a softer trend in macro data."

US companies hired far fewer workers than expected in May, and output in the manufacturing sector slowed to its lowest level since 2009, adding to concerns that the US recovery is running out of steam.

The figures do not bode well for Friday's US non-farm payrolls data, analysts said.

"A string of negative economic data stopped the (base metals) rally," said an LME ring trader.

"If the payrolls data tomorrow is disappointing, we may see copper through $9,000."

Slower-than-expected manufacturing expansion in top metals consumer China and in the euro zone was also weighing on sentiment.

"The PMI data for June suggested that the pace of manufacturing is slowing faster than expected in the Western world, although holding up better than anticipated in China if usual seasonality holds," Macquarie said in a note.

"While the drop in leading indicators may cause some concern, we would point out that a more moderate rate of growth is still consistent with stronger pricing for those commodities which are currently in large deficits like copper."

Capping losses, the euro rose to a one-month high against the dollar, boosted by expectations of a quick-fix solution to the Greek debt crisis.

A softer US currency makes dollar-priced commodities more affordable for holder of other currencies.

LOWER IMPORTS

Inventories of copper on the London Metal Exchange rose by 2,650 tonnes to 473,500 tonnes, the highest in a year.

The noticeable increase in LME copper stocks seen since December last year raised some concerns about waning imports from top consumer China.

But this increase was partly balanced by a recent reduction registered in inventories in Shanghai and off-warrant stocks, analysts said.

Higher LME stocks do not show a decline in global underlying demand but rather lower imports into China, which is tapping into its inventories after having stockpiled material last year, Major said.

Given the seasonal weakness in copper consumption, a strong rebound in Chinese imports is unlikely in the next two months, but imports should increase at the end of the third quarter and in the fourth quarter, he added.

Aluminium traded at $2,654 from a last bid at $2,667 on Wednesday and zinc, used in galvanizing steel, traded at $2,245.5 from $2,257.

COPYRIGHT REUTERS, 2011