Copper up as China data boosts sentiment

Worries over the sovereign debt crisis in Europe and the US and concerns over a potential hard landing for the western economies however, were limiting gains.

Benchmark copper on the London Metal Exchange rose 1.6 percent to $8,859.25 a tonne by 0941 GMT from a close at $8,720 on Monday, when it fell 1.2 percent.

The metal, used in power and construction, was down more than 8 percent from the beginning of the month and was about 13 percent away from a record high of $10,190 hit on Feb.15.

"The sentiment has changed in Asia overnight...the PMI figures were the trigger," said Steve Hardcastle, head of metals trading at Sucden Financial.

"It's a market that is looking for positive news and is reacting to it. A shift in sentiment, a marginally weaker dollar and equities market slightly up are supporting metals."

HSBC's China Flash PMI showed the Chinese factory sector may have slowed slightly in August from July as new orders and new export orders eased on languid overseas demand.

But HSBC said it believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output and 9 percent expansion in gross domestic product, even if it indicates a contraction in factory activity on the month.

China is the top buyer of industrial metals and consumes about 40 percent of copper production, estimated at 19 million tonnes this year.

BRIGHT OUTLOOK

Also supporting industrial metals, the euro strengthened against the dollar, boosted by a stronger-than-expected reading of German manufacturing activity.

A weaker US currency makes dollar-priced commodities more affordable for holders of other currencies.

"Base metals are decoupling from other markets such as equities because the influence of China's demand is much higher than Europe's and the United States' for metals," said Gianclaudio Torlizzi, ceo of metals consultancy T-Commodity.

"Metals would fall heavily only with a hard landing of the Chinese economy, which is highly unlikely at the moment. That's why we are bullish and are suggesting our clients to buy on dips, particularly for metals such as copper and tin, for which a market deficit is forecast."

Supporting copper, data released on Monday showed that China's imports of refined copper rose 8.8 percent to a six-month high in July.

Some analysts have slightly revised demand growth forecast for copper given the deteriorating global economic outlook but maintain that there will be an upside to prices from current levels.

Labour disruptions at some of the world's largest copper mines were also supporting the red metal.

"Copper has held up amazingly well, largely thanks to ongoing hits to production from labour strikes over the past month," Citi said in a note.

"Based on the fact that aluminium has experienced strong demand in recent months and is also much closer to its cost of production than the other base metals, we tend to prefer it." Aluminium, used in transport and packaging, was at $2,356 a tonne from a last bid of $2,336 at the close on Monday.

China's aluminium production dropped a gear in July according to data from the International Aluminium Institute, a development likely to exacerbate an evolving tightness in the domestic market.

Tin was at $23,490 from $22,850 while zinc, used to galvanize steel was at $2,185 from $2,152 Monday's close.

Battery material lead was at $2,301 from $2,262 and nickel was at $21,036 from $20,825.

Copyright Reuters, 2011