Copper hits two-week low on China policy concern, U.S., Europe manufacturing

Copper fell for a third day on Friday and is set to settle the week lower on concern that a restrictive monetary policy in China, the worlds largest consumer, will curb demand for raw materials. The first decline in U.S. manufacturing activity since 2009 and a smaller than expected expansion of the Euro zones manufacturing sector further pressured prices.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December traded at $3.242 per pound at 8:33 GMT, down 0.67% on the day. Prices fell to a two-week low $3.234 per pound, while days high stood at $3.272. The industrial metal was almost unchanged on Thursday but extended its weekly decline to over 1.4% on Friday.

Copper drew support after a preliminary private gauge of China’s manufacturing expansion exceeded analysts’ expectations. The HSBC Flash China Manufacturing Purchasing Managers’ Index surged to a seven-month high of 50.9 in October, up from September’s final estimate of 50.2. The expansion was largely based on strong new orders. The report also showed that China’s Manufacturing Output Index rose to a six-month high of 51.0 from 50.2 in September.

However, investors remained wary on speculations for monetary tightening after China’s money-market interest rates rose to the highest in three months on Wednesday. The People’s Bank of China refrained from injecting cash on Thursday for a second day on concern that ample credit could fuel inflation after the National Bureau of Statistics reported that home prices in four major cities rose to the highest since January 2011, while consumer inflation gained at the fastest pace since February.

Chae Un Soo, a metals trader at Korea Exchange Bank Futures Co. in Seoul, said for Bloomberg: “Concern about China’s tightening kept downward pressure on the copper market, for which analysts forecast another global surplus next year.”

Prices were also pressured after a preliminary report showed that manufacturing activity in the U.S. fell to a 12-month low and slowed down for the first time since September 2009. The decline was based on weak new orders growth, the slowest in six months, despite a rise in employment.

Chris Williamson, Chief Economist at Markit, commented: “The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a setback in the fourth quarter, but it is too early to estimate the extent of the shutdown. The Fed will be equally unsure of the underlying health of the economy, and will no doubt want to see the economic data stabilise, which could take until the end of the year, before making any firm policy decisions.”

Manufacturing in the Euro zone also disappointed after data showed yesterday that France’s Advance Manufacturing PMI fell to 49.4 from 49.8 in October, confounding projections for an increase to 50.1. Germany’s manufacturing activity managed to pick up and rose to 51.5 from 51.1, beating projections for a gain to 51.4. However, the Euro zone’s preliminary manufacturing Purchasing Managers’ Index rose to 51.3 in October from 51.1 in September, underperforming expectations for an increase to 51.4.

Also fanning negative sentiment, Germanys business confidence unexpectedly fell for the first time in six months amid uncertainty of the Euro zones economic recovery. The IFO Business Climate index fell to 107.4 in October from 107.7 a month earlier, defying analysts projections for a surge to 108.0. The IFO Expectations index slipped to 103.6 from 104.2 in September, underperforming expectations for a gain to 104.5. The IFO Current Assessment index failed to meet expectations for remaining flat at 111.4 and inched down to 111.3.

Market players will be keeping a close watch on the remaining economic data for the day. Great Britains preliminary GDP reading for the third quarter is expected to have gained 0.8% after rising 0.7% in the preceding three months. Year-on-year, the islands GDP growth is projected at 1.5% from 1.3% in the second quarter.

In the U.S., Durable Goods Orders likely rose by 2.3% in September after inching up by 0.1% in August, according to a Bloomberg survey of analysts. Durable Goods Orders ex Transportation probably advanced by 0.5% after contracting by 0.1% in the preceding month, while Durable Goods Orders ex Defense are expected to have surged 3.2% following a 0.1% decline in August.