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Copper en route to worst quarter since 2011

copperCopper rebounded on Friday to trade near its previous close after plunging more than 1% during the Asian session. The industrial metal has been heavily pressured by Feds announced intention to taper its bond purchasing program during the second half of the year and Chinas worsening economic condition, which puts global demand at risk. The Asian country is the worlds biggest copper consumer, accounting for 40% of global consumption.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded 0.17% higher on the day at 9:47 GMT. The industrial metal stood at $3.065 a pound, ranging between days high and low at $3.067 and $3.017, which was touched during the early Asian session. Copper settled 3.14% lower last week as the stronger dollar pushed down most of the dollar-priced commodities and is marking a 1.15% fall so far this week.

The metal was recently pressured by both of its pricing factors – demand and strength of the dollar. The U.S. currency extended gains throughout the last two weeks. The dollar index, which measures the performance of the greenback versus six major counterparts, settled 2.21% higher during the preceding week and has so far advanced 0.71% for the last five days. This followed Ben Bernankes statement previous Wednesday that the central bank won’t scale down its monetary easing program just yet, but that is highly possible to happen within the end of the year, if the needed stable recovery signs are provided. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, sentiment however points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops to 7%, which Fed expects to happen around mid-2014.

Feds intention was backed by positive U.S. economic data that sighted consistent economic recovery, which supported the U.S. dollar. Copper prices were also pressured by dim demand outlook from the metals biggest consumer – China. The Asian country received a yet another downward revision of its GDP growth forecast, this time by Goldman Sachs. Chinas economy is expected to expand by 7.4%, down from 7.8% and below the official target of 7.5%. GDP growth for the second quarter was also trimmed and stood at 7.5%, compared to the previous expectation of 7.8%. The 2014 forecast was revised down to 7.7% from 8.4%.

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 own economy growth forecast to 7.75%, down from 8%.

Meanwhile, the PBOC announced it will handle the cash squeeze that settled in the Chinese economy. Ling Tao, deputy director of the Shanghai branch of the People’s Bank of China, said the central bank will guide interest rates to a “reasonable range”, which eased concern on the metal’s appeal. Tao also said interbank liquidity is overall under control and ample. He added that the People’s Bank of China will keep monitoring the economy and will keep making efforts into stabilization. On Thursday, the metal found some support as official data said that Chinese industrial companies increased their profits during May by 15.5%, well above Aprils 9.3% gain.

Liang Lijuan, an analyst at Cofco Futures Co., said for Bloomberg: “What concerns the market most is China’s macro conditions. Copper has further downside.”

Copper traders are now looking into next weeks key indicators coming out form China, which are likely to cause wide market movements. China’s official Purchasing Managers’ Index is due on Monday. According to a Reuters poll, it should have fallen to 50, down from May’s 50.8 final reading, which, if confirmed, would lay heavy pressure on the industrial metal.

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