Copper rebounds following Bank of China’s decision to boost credit support

Copper rebounded on Friday after it hit a 20-month low on Thursday, pressured by Chinas manufacturing outlook and strengthening of the dollar caused by FOMCs last meeting.

On the Comex division of the New York Mercantile Exchange, copper futures for July delivery traded 0.34% higher on the day. The industrial metal stood at $3.073 a pound at 9:31 GMT, ranging between days high and low at $3.092 and $3.020 respectively.

Copper was supported as Chinas central bank said it will ease money lending amid the cash squeeze that has settled in the countrys economy. Premier Li Keqiang said last night the financial system needs to do a better job of supporting the economy. The government is expected to boost credit support for strategic industries and those that are labor-intensive.

Liang Lijuan, an analyst at COFCO Futures Co., said by phone for Bloomberg: “LME copper has reached a key technical level, and there should be some tentative buying. An effective breach of $6,600-$6,700 could lead to another $1,000 fall, so people are asking themselves whether this is justified.”

Copper fell to record lows yesterday as it was pressured its both pricing factors. The greenback rose yesterday as Ben Bernanke announced Feds Quantitative Easing program might be scaled back during the second half of the year and if sustainable economic recovery is at hand the monetary stimulus might come to an end in 2014. This caused the dollar index, which tracks the greenback’s performance against six major counterparts, to end 0.61% higher on Thursday after hitting a two-week high at 82.10 and extend further gains. So far, the dollar index has marked a weekly gain of 1.56%.

Meanwhile, demand outlook for the industrial metal was grim as another batch of negative China data was released. The country’s preliminary reading of the HSBC Purchasing Managers’ Index, showed China’s manufacturing shrank with a faster pace this month. The flash reading of 48.3, which, if confirmed, will be the lowest since September, mismatched the 49.1 forecast by a Bloomberg News survey and is worse than May’s final value of 49.2.

This comes after The World Bank reduced its forecast for the nation’s economic growth to 7.7%, down from 8.4%. Earlier, during the last week of May, the IMF cut its economy growth forecast for China to 7.75%, down from 8%. Record credit in the first four months of the year failed to spur growth and premier Li Keqiang said the financial system needs to do a better job of supporting the economy. The government is expected to boost credit support for strategic industries and those that are labor-intensive.

Chinas economy growth is considered as one of the main sources for fluctuations in copper pricing as the country is the worlds biggest copper consumer. Chinas economy, largely based on industrial production, uses widely the metal in manufacturing and accounts for 40% of the global consumption.