Copper dips in profit-taking pause

New York/London: Copper retreated from a fresh four-month peak on Friday, hit by a weaker euro and disappointing data from China that signalled a sluggish start for the metal-consuming giant's manufacturing sector.

Volumes picked up a bit as investors cashed in on a strong New Year rally that saw prices of the industrial metal climb over 10 per cent on expectations of pro-growth policies in China, which accounts for nearly 40 per cent of the world's copper intake.

But China's demand prospects waned after the HSBC flash manufacturing purchasing managers index (PMI) — the earliest indicator of China's industrial activity — came in at 48.8 in January, staying below the 50 level, which demarcates expansion from contraction.

Friday's profit-taking losses could extend into this week as Chinese markets close for the week-long Lunar New Year holiday, which begins tomorrow.

"I didn't think anyone really wanted to be long going into (this) week," said Catherine Virga, senior base metals analyst with CPM Group in New York. "I think we could see some profit-taking (this) week, but I do not necessarily think a massive pullback is in order given that the fundamentals are still pretty tight."

New high

London Metal Exchange (LME) three-month copper peaked at $8,428.50 (Dh30,932) a tonne, a new high dating back to September 20, before ending the day at $8,225, down 1.6 per cent from a last bid of $8,360 on Thursday. Losses picked up after the close, driving the price to a late-session trough near $8,200.

In New York, the key March Comex contract shed 5.55 cents or 1.5 per cent to settle at $3.7450 per pound, after touching its own four-month peak at $3.8340. Comex copper open interest hit a three-month peak near 132,500 lots during the New Year rally in the futures price.

Money managers, including hedge funds and other large speculators, switched to a net long position in copper during the week of January 17, reversing a long-standing bearish bet in the red metal in place since late September 2011, US Commodity Futures Trading Commission (CFTC) figures showed.

Trading volumes on Friday stood near 60,000 lots in late New York business, up nearly 40 per cent from the 30-day norm, according to preliminary Thomson Reuters data.

Aside from China's growth concerns, copper bears were also influenced by moves in the currency markets. The euro fell from a two-week high against the dollar as investors, wary about the outcome of Greek debt negotiations, locked in profits from this week's rally.

Supply constraints

Supply constraints and dwindling inventories of copper have helped to keep a floor under the price of the metal, however. Copper inventories monitored by the LME fell to their lowest since October 2009, data showed.

"There is no doubt a problem with copper supply. You've had results from the major corporates this week showing continued problems into fourth quarter. So this year we're going to see modest demand growth against a backdrop of pretty poor supply growth," analyst Dan Smith of Standard Chartered said. Global diversified miners Rio Tinto and BHP Billiton both reported lower copper production in the fourth quarter.

Copper inventories monitored by the Shanghai Futures Exchange rose 9.3 per cent from last Friday, the exchange said.

Aurubis eyes growth

Aurubis, Europe's largest copper producer, said it expected robust results this year, with strong demand from China, which accounts for 40 per cent of global consumption of the metal.

A third straight monthly fall in Chinese house prices in December could add to concerns in several key metal markets, but the world can still bank on sustained and long-term demand growth from the second-biggest economy.

"Market sentiment is clearly positive and the sector benefits more than other markets from the improvement in funding conditions due to its capital intensity," Credit Suisse said in a research note. "However, we would warn that there are still some risks in the near term. Inventories in China are rising, which hints at moderating demand, at least temporarily."

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