Copper on a three-week low on China demand concern

Copper fell on Monday and extended last weeks decline on renewed concern over demand from top consumer China as profits earned by Chinese industrial companies in June rose less year-on-year compared to the previous month.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.094 a pound at 8:46 GMT, down 0.36% on the day. Prices ranged between days high at $3.113 and low of $3.086 a pound, the lowest since June 10. The industrial metal fell 2.67% on Friday and closed the week 1.33% lower after plunging 0.24% the preceding one.

The red metal continued to decline on Monday as Chinese industrial companies reported their earnings rose by 6.3% in June year-on-year, well below Mays 15.5% surge compared to the previous year. This comes after the countrys flash HSBC/Markit PMI fell to 47.7, compared to June’s final reading of 48.2 and if confirmed in the final report on August 1, it will be the lowest in 11 months. Readings below 50 indicate contraction in the respective sector. Also, a sub-index that measures employment fell for a fourth consecutive month below 50 to 47.3 in July, below June’s 47.7 reading and the the weakest since March 2009.

The National Bureau of Statistics of China will release the countrys official Purchasing Managers Index (PMI) on Thursday. According to a Bloomberg survey, the reading may have dropped to 49.8, signaling contraction.

Meanwhile, Goldman Sachs said in a report on Friday that global copper surplus may as much as double by 2015 and total 500 000 tons, up from 257 000 tons in 2013.

Also last week, the Chinese Ministry of Industry and Information Technology ordered over 1 400 companies in 19 industries to cut surplus production capacity. Excess capacity must be idled by September and eliminated by the end of the year. According to Barclays Plc., the country produced 5.82 million tons of refined copper last year. This year, 654 000 tons of copper capacity must be shut down.

Li Ye, an analyst at Shenyin & Wanguo Futures Co. in Shanghai, said for Bloomberg: “A lot of investors are bearish on China’s growth and therefore bearish on copper demand. The official PMI later this week probably won’t be good.”

Meanwhile, market players will also be keeping a close eye on Federal Reserves two day meeting this week and the upcoming key U.S. data to assess the economics recovery pace. Pending Home Sales are due on Monday, while Consumer Confidence report and S&P/Case-Shiller Composite-20 Home Price Index will be released on Tuesday. On Wednesday, we’ll have preliminary unemployment data prior to Friday’s Unemployment Rate. The ADP Employment Change is expected to remain flat at 188 000. Also on Wednesday, Personal Consumption Expenditures, Employment Cost Index and Chicago PMI will be released and the FOMC will announce its interest rate decision. On Thursday, Initial Jobless Claims are expected to have risen by 1 000 in the week ending July 27 and the ISM Manufacturing index should show improvement. On Friday, one of Fed’s main requirements to trim its monetary stimulus, the Unemployment Rate, is expected to have fallen to 7.5% in July, down from 7.6%. Also on Friday are due Personal Income, Personal Spending, Average Hourly Earnings and Factory Orders.