Copper drops on China data

Bare CopperCopper dropped on Tuesday after Chinas National Bureau of Statistics reported the countrys Producer Price Index dropped more than expected in June, marking the worst run since 2002.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.078 a pound, marking a 0.70% daily loss. Prices ranged between days high and low of $3.115 and $3.076 respectively. The industrial metal rose 0.7% yesterday as the dollar retreated from a three-year high and is marking a 0.3% weekly advance after settling 0.38% higher last week.

The National Bureau of Statistics reported today that Chinas Producer Price Index (PPI) fell 0.6% in June compared to May and 2.7% on an annual basis. This was above expectations for a 2.6% decrease according to a Bloomberg News survey, posting the worst reading since 2002 and adding another bit to the negative Chinese economic data that has been piling in the last two months. The country is the red metals biggest consumer, using it widely in its industrial production.

Jia Zheng, an analyst at East Asia Futures Co., said for Bloomberg: “The data affirmed traders’ views that the economy isnt doing well. But it didnt give any further negative surprises, so copper is likely to drift at this level for a while.”

The industrial metal was pressured recently as negative economic data from China and Feds reinforced view of tapering its Quantitative Easing program weighed on prices. On July 1, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported 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. China’s non-manufacturing PMI dropped to 53.9, down from 54.3 in May.

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. 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.

Meanwhile, Goldman Sachs recently trimmed its growth forecast for the Chinese economy down to 7.4% from 7.8%, while the 2014 forecast was cut to 7.7%, down from 8.4%.

Coppers other pricing factor, strength of the dollar, was also unfavorable for the industrial metal. The dollar index hit a three-year high on Friday, which was then beaten on Monday as the U.S. Labor Department reported the U.S. economy created more jobs in June than expected and revised its May reading upwards, reinforcing the consistent recovery sentiment. Non-Farm Payrolls stood at 195 000, up from projections for a 165 000 reading, aligning with Mays revised reading. The Unemployment Rate mismatched projections of a decrease to 7.5% but at least remained unchanged at 7.6%.

Investors are now looking ahead into Fed’s minutes on Wednesday and Ben Bernanke’s statement, which are expected to provide further information about the central bank’s future monetary policy.

Market players are also eyeing upcoming data from China that might show growth is headed to a 23-year low, in line with previous GDP downward revisions. Any signs of expansion or contraction of China’s economy cause wide fluctuations to copper pricing as the country accounts for 40% of global consumption.

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