Copper trading outlook: futures dip with negative reports from China; US supports

Copper futures saw bearish trading before noon in Europe, as negative factory reports from China continued pressuring the industrial metal. On Thursday a report on Chinese foreign trade is expected to show a contraction in exports. Previously, data on Friday stoked confidence for the red metal, as employment figures in the US reached multi-year highs.

On the COMEX division of the New York Mercantile Exchange, copper futures for settlement in July slid by 0.61% to trade at $3.0385 per pound at 12:19 GMT today. Prices shifted in a daily range between $2.0320 and $3.0620 a pound. On Friday the contract added 1.61% on multi-year high employment figures in the US.

Copper continued to drop gains it made last Friday, after HSBC’s final reading for April’s manufacturing PMI of China put the figure at 48.1. The reading marked the fourth month in a row to register a contraction in factory activity. The figure is also behind the preliminary standing of 48.3, and below the government’s 50.3 index, which also fell short of expectations.

On Thursday, China’s National Bureau of Statistics will release April trade data, which may show a third straight monthly decline in exports, while imports are projected to have recovered from last month’s 11.3% plunge.

Traders have been calculating the probability of China launching a stimulus program to restore previous levels of growth in its economy. Improving credit accessibility and subsidizing industries would boost copper contracts, as right now credit is tight and physical supplies are lagging behind demand. Further still, the Chinese government has been buying huge amounts of bonded copper, as much as 500 000 tons, fueling massive infrastructure and housing projects.

“The market is still trying to find out the direction for copper – but we continue to see support for prices on the dip,” said for Reuters Chief Executive Jonathan Barratt at commodity research firm Barratts Bulletin in Sydney. “When you look at where copper is, and the sort of growth we are expecting, then copper certainly is an undervalued play,” he added.

Last Friday copper drew support when the Labor Department reported that the US unemployment rate stood at 6.3% in April – the lowest since the very start of the financial crisis in Autumn 2008. Meanwhile, nonfarm payrolls jumped by 288 000 for the month of April, marking the highest rise since May 2010.

A separate report by the Commerce Department showed that factory orders in March edged up by 1.1%, compared to 1.5% in February. Albeit trailing expectations for a 1.4% jump, this was a second straight month of expansion following a 2.2% drop in the December-January period. Earlier, ISM’s manufacturing PMI also recorded a significant gain for April to stand at 54.9, exceeding the expected 54.3, meaning a faster pace of growth in the industrial sector.

Earlier on Friday the final reports on April’s factory PMI in the Eurozone offered sizable support for copper. Germany recorded a slight slow-down in the pace of industrial activities growth to stand at 54.1, while Italy and France registered gains on the advance readings, to settle at 54.0 and 51.2, respectively. The single-currency bloc as a whole also added to preliminary data, to log at 53.4.

Technical view

According to Binary Tribune’s daily analysis, in case Copper July futures manage to breach the first resistance level at $3.0662 per pound on Monday, they will probably continue up to test $3.0753. In case the second key resistance is broken, the industrial metal will likely attempt to advance to $3.0847.

If the contract manages to breach the first key support at $3.0477, it may continue to slide and test $3.0383. With this second key support broken, the movement to the downside will probably continue to $3.0292.