Copper falls on China demand outlook

After gaining for the past two days, copper fell nearly 1% on Friday amid concerns over demand from the worlds biggest consumer, China.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery traded at $3.148 a pound at 10:38 GMT, down 0.92% on the day. Prices held in range between days high and low of $3.193 and $3.136 respectively. The industrial metal gained around 4% during the past two days, having advanced 2.72% so far this week after Fridays fall.

The red metal tumbled amid concern over demand prospects from top consumer China following weak macro indicators. On Wednesday, the General Administration of Customs reported the country’s June imports and exports declined, refuting expectations for an increase. On Tuesday, the National Bureau of Statistics reported that China’s Producer Price Index (PPI) showed the worst reading since 2002, dropping by 2.7% on an annual basis. Meanwhile, the IMF recently cut its growth forecast for the Asian country. All of China’s preliminary July PMI readings and final June readings showed worse performance, compared to May.

Although prices recently drew support by data which showed Chinas copper imports reached a nine-month high on arbitrage, the slowing industry production and economy overall are indicating faltering demand prospects. Chinas finance minister announced today he expects the Chinese economy to expand at around 7% this year, below official projections, but the government may be willing to tolerate economic growth in the second half of the year significantly below 7%. This was the most sobering comment from a senior policymaker on the cooling down economy. Meanwhile, according to Xinhua News Agency, Premier Li Keqiang said policy should ensure economic activity moves within a reasonable range.

Chae Un Soo, a metals trader at Seoul-based Korea Exchange Bank Futures Co. said for Bloomberg: “Macro indicators out of China have been weak so far. The comment by Li Keqiang does not seem to have assured the market that he will surely do something to boost growth.”

Copper was also supported recently by a weaker dollar. The dollar index, which measures the greenbacks performance against a basket of six major counterparts, retreated from a three-year high after the released Fed minutes and Ben Bernankes announcement on Wednesday. The Fed chief backed as much as half of the FOMC policymakers in deferring the deceleration of the bond purchasing program as the labor market was still fragile and the low and stable inflation gave the central bank room to move. The dollar index rallied on Friday, trading at 83.16 at 10:34 GMT, up 0.34% on the day, which pushed commodities down. However, the U.S. currency gauge is still marking a 1.8% weekly decline after the steep fall on Wednesday.

Investors are now looking ahead into Fridays key U.S. economic data, which will influence the dollar. Producer Price Index and Core Producer Price Index are due at 12:30 GMT, while the Preliminary University of Michigan Confidence will be released at 13:55 GMT. Projections are for a gain of the Producer Price Index on an annual basis, slight decline in the annual reading of the Core Producer Price Index and an improvement in the consumer confidence. Mismatches of expectations would strongly influence dollars strength.