Copper falls on stronger dollar and China economic slowdown

Copper failed to extend Mondays 3% rally through Tuesday and declined as the stronger dollar and slowing economic growth in China weighed on prices.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery lost 0.30% on the day by 10:05 GMT. The industrial metal traded at $3.148 a pound and held in range between days high at $3.166 and $3.133. Copper settled 3% higher yesterday amid positive PMI data from the U.S. and main EU members. The red metal posted a 1.29% decline last week, following a 3.14% fall during the previous one.

Copper fell today as the greenback gained, laying pressure on dollar-priced commodities. A stronger dollar reduces raw materials appeal as an alternative investment and makes the more expensive for foreign currency holders. The greenback pushed against the Euro today as Greece, the EUs most troubled member, received a three-day deadline by the “troika” to deliver on conditions attached to its international bailout in order to receive the next tranche of monetary aid. EU officials said that Greeces three lenders, the EU, IMF and ECB are not happy with the countrys progress towards its public sector reforming. This comes after political tension in Italy arose as a coalition partner of Prime Minister Enrico Letta threatened to withdraw support.

A Reuters source said for the media: “All agreed that Greece has to deliver (pledges) before the Eurogroup on Monday. Thats why they must present again on Friday”.

The dollar index, which tracks the greenbacks performance against its six major counterparts, gained 0.26% on the day by 10:13 GMT. The U.S. currency gauge traded at 83.41 and varied between days high and low of 83.46 and 83.18 respectively. It settled 0.98% higher last week and marked a 2.21% gain during the preceding one.

China slowdown

Copper prices were also pressured as demand outlook from its biggest consumer remained grim. The China Securities Journal reported today that the Asian countrys economic growth might slow down to around 7.5%, which is generally in track with other analysts expectations. Last week, Goldman Sachs trimmed its GDP growth projection for China to 7.4%, down from 7.8%, while the 2014 forecast was cut to 7.7% from 8.4%.

Yesterday, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported China’s PMI fell to 50.1 last month, below May’s 50.8 figure, but above expectations of 50.0, which is the neutral level of the scale. Values above 50 indicate economic expansion and below 50 – contraction.

According to a separate private index prepared by HSBC and Markit Economics, operating conditions in China’s manufacturing sector worsened during June for a second month in a row. The Asian country’s HSBC PMI stood at 48.2 in June, down from May’s 49.2 reading and below projections of 48.3, straying further from the neutral level. Chinese manufacturers signaled a first reduction of output since eight months in June. Total new orders fell for a second month as client demand contracted. Staff numbers were also decreased, marking the fastest job shedding since last August.

Copper marked a 3% daily gain yesterday as its demand prospect was boosted amid positive PMI data from the EU and U.S. Spain’s Manufacturing PMI rose to 50.0, compared to May’s 48.1 reading and surpassing expectations of 48.9. This was the highest level since two years. Germany’s Final Manufacturing PMI failed to meet projections of 48.7 and stood at 48.6. However, France managed to outperform expectations of 48.3 and the country’s Final Manufacturing PMI rose to 48.4. Italy also surprised with a rise to 49.1, well above the 47.6 forecast and last month’s 47.3 reading. The Euro zone’s general Final Manufacturing PMI surpassed expectations of 48.7, which was also last month’s reading, and stood at 48.8.

Meanwhile, Great Britain’s Manufacturing CIPS also outperformed expectations of 51.0 and rose to 52.5, compared to last month’s 51.5 revised reading. In the U.S., the ISM Manufacturing index marked a serious improvement, rising to 50.9. This was well above May’s 49.0 value and forecasts of an increase to 50.5.