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METALS-Copper dips on China credit worries, European growth

Eric Onstad
Thursday, 24 Oct 2013 | 6:40 AM ET

* PBOC declines cash injection for third day

* China manufacturing picks up in October

* Euro zone manufacturing flash PMI worse than expected

* Nickel short-covering likely to continue-Marex

LONDON, Oct 24 (Reuters) - Copper edged down to its lowest in more than a week on Thursday as persistent concern about credit tightening in top metals consumer China offset upbeat manufacturing growth there.

A surprise setback in business growth in the euro zone also helped dampen the appetite of investors for copper and other industrial metals.

Three-month copper on the London Metal Exchange slipped to a session low of $7,153 a tonne, the weakest since Oct. 14, before edging up 0.17 percent to $7,183.50 a tonne by 1025 GMT. It fell 2.2 percent on Wednesday.

The market remained concerned about a cash crunch in the world's second biggest economy after China's central bank declined to inject cash for a third day.

"If you look back at the Chinese experience in 2007, this is quite similar. The initial spike in repo rates was followed by some aftershocks that were caused by stealth tightening," said Vicky Sanders, head of analytics sales at broker Marex Spectron.

"It seems to me a similar situation is happening in China at the moment and any tightening in China is a challenge for base metals."

Copper prices drifted to modest gains during Asian trading after a survey showed activity in China's giant manufacturing sector picked up in October, suggesting the economy may have stabilised even though a strong rebound remains elusive.

But prices lost ground on the credit concerns and after business surveys showed the pace of growth in euro zone business eased unexpectedly this month.

Copper prices have traded in a $7,000-7,420 band since late August and remain down by about 9 percent this year.

MORE UPSIDE SEEN IN NICKEL

China's economy is set to grow 7.6 percent in 2013, beating the government's 7.5 percent target, before losing some steam next year as the government forges ahead with structural reforms, a Reuters poll showed.

"The big question people are looking at now is what happens in the fourth quarter," said analyst Ivan Szpakowski of Citi in Shanghai. "Our view is that it will be slower and a lot of that is basis credit tightening since the second quarter and because of that we're expecting slower growth and that does feed into our bearish copper view."

Currently the copper market is largely in balance, but rising supply will shift that next year, said Paul Dewison of consultancy Intierra.

"The fourth quarter we see as being sharply in surplus, as concentrate stocks go to refined (metal). Longer term, we are looking at surplus, at about 350,000-400,000 tonnes in both 2014 and 2015," he told the Reuters Global Base Metals Forum.

LME nickel prices also were little changed, rising 0.03 percent to $14,600 per tonne, after strong gains in recent days on worries about a planned export ban in Indonesia.

Despite Wednesday's setback, when nickel shed 1.7 percent, it is still the best performing LME base metal this month with a 6 percent rise.

Sanders said more gains were likely. "A lot of the move higher we've seen in nickel over the last couple of weeks has been short-covering. The nickel market is still short so this could continue."

PRICES

Three month LME copper

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Three month LME aluminium

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Three month LME zinc

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Three month LME lead

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Three month LME nickel

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