Copper slumped to the lowest levels in six years on Friday after weak factory data from top metals consumer China highlighted lacklustre demand that could send prices even lower. The losses on the London Metal Exchange wrapped up a week of persistent selling by speculators that saw the biggest weekly falls in zinc and lead in more than two years.
China's factory sector contracted by the most in 15 months in July as shrinking orders depressed output to its lowest since March 2014, the preliminary Caixin/Markit survey showed. Concerns over the Chinese economy combined with other headwinds are likely to keep weighing on metals markets, said Xiao Fu, head of commodity market strategy at Bank of China International in London.
"Input costs for miners are falling, the fundamentals are not strong, and there's a general sentiment of rotating outside of commodities to other asset classes," she said. "So the combination of all those factors is likely to sustain pressure on the market. In addition, the summertime is typically a lower-demand period."
Three-month copper on the LME slid to $5,191.50 a tonne, its cheapest since July 2009, before paring losses. It failed to trade in closing open outcry activity and was bid down 0.2 percent at $5,260. Copper lost about 4 percent this week, its biggest weekly fall in about a month. In the short term, $5,000 a tonne could offer support to the copper market, Fu said.
Given June indicators had pointed to recovery, and it was the first time Caixin had published the China factory report, another reading was required to determine whether this was a trend or a weak patch before a recovery in demand after the summer, said analyst Helen Lau of Argonaut Securities in Hong Kong. Also depressing market sentiment was data showing slower-than-expected growth in business in the euro zone in July, while in the United States, new home sales hit a seven-month low in June.
Among other LME metals, aluminium bucked the trend and gained 0.5 percent to close at $1,642.50 a tonne. A trader said buying emerged after the metal held fast at levels just above a six-year low of $1,631.50 struck earlier in July. "Short-term tightness, exacerbated by a likely pick-up in financing activity, may provide a boost to premia and prices heading into Q4," said Leon Westgate, analyst at ICBC Standard Bank. Nickel fell 1.2 percent to end at $11,310 a tonne amid disappointment over stubbornly high nickel inventories.
LME nickel stocks have failed to show steady declines as forecast by some investors, who have been counting on an Indonesian ban on ore exports last year to cause shortages. Zinc closed down 1.3 percent at $1,955 a tonne while lead shed 0.8 percent to $1,719, bringing weekly losses to 5.2 percent and 6.8 percent respectively, the deepest weekly falls since late 2012. Thinly-traded tin jumped 3.4 percent on short-covering to finish at $15,450.
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