Copper gains more than 2% despite China PMI data

Copper surged on Monday, extending Fridays gains. The industrial metal rose as China economic data met expectations, despite marking worse values than the previous month.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery gained 2.15% on the day by 11:24 GMT, trading at $3.123 a pound. The industrial meta rose to $3.127 earlier in the day, hitting the highest level since June 20. Days low was touched during the early Asian session at $3.036 a pound.

Copper was recently pressured as dim demand outlook weighed on prices since the metals biggest consumer, China, had its growth prospects further reduced, adding to the recently formed pile of negative economic data. The Asian country received a yet another downward revision of its GDP growth forecast, this time by Goldman Sachs. China’s economy is expected to expand by 7.4%, down from 7.8% and below the official target of 7.5%. 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%.

However, 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 April’s 9.3% gain. Today, copper drew some support from the overall negative PMI data, which however matched expectations. According to the National Bureau of Statistics and China Federation of Logistics and Purchasing, China’s PMI fell to 50.1 last month, below May’s 50.8 figure, but above expectations of 50.0, which is the neutral level of the scale. Values above 50 indicate economic expansion and below 50 – contraction.

Wang Jingjing, an analyst at Founder Futures co., said by phone for Bloomberg: “The slowdown in China has been priced in. Copper is rebounding toward $7,000”, he referred to copper prices on the London Metal Exchange.

According to a separate private index prepared by HSBC and Markit Economics, operating conditions in China’s manufacturing sector worsened during June for a second month in a row. The Asian country’s HSBC PMI stood at 48.2 in June, down from May’s 49.2 reading and below projections of 48.3, straying further from the neutral level.

According to HSBC and Markit Economics, Chinese manufacturers signaled a first reduction of output since eight months in June. Total new orders fell for a second month as client demand contracted. Staff numbers were also decreased, marking the fastest job shedding since last August.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “Falling orders and rising inventories added pressure to Chinese manufacturers in June. And the recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for SMEs. As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months.”

Meanwhile, the industrial metal has been pressured throughout the year by its second pricing factor – the strength of the dollar. As a dollar-priced commodity, copper is trading inversely to the greenback. Copper prices plunged after FOMCs last meeting when Ben Bernanke announced Fed will probably be decelerating its bond purchasing program during the second half of the year and probably bring it to an end by mid-2014, if the proper consistent recovery signs are provided. This caused, according to many analysts, an overreaction by the market, which sent almost all commodities to record lows, led by precious metals. Copper wasnt spared as well. The dollar index settled 0.98% higher last week and marked a 2.21% jump during the preceding week.

Investors will be looking into this week’s key U.S. data that will show if the economy’s recovery keeps in line with Fed’s projections. The ISM Manufacturing index is due on Monday and the ISM Non – Manufacturing Composite index on Wednesday, coupled with the Trade Account, which is expected to show a 40 billion deficit. Factory Orders will be published on Tuesday. On Wednesday, the ADP Employment Change and Initial Jobless Claims will give a preliminary insight into the U.S. labor market’s state, prior to Friday’s most important Change in Non-Farm Payrolls and Unemployment Rate indicators.