Copper rebounds after plunging on negative China PMI data

Copper fell during Asian and early European trading on Wednesday, followed by a rebound close to six-week highs as prices continued to draw support from Chinese governments intentions to boost economic growth and QE outlook.

On the Comex division of the New York Mercantile Exchange, copper for September delivery traded at $3.210 a pound at 8:37 GMT, up 0.36% on the day. The industrial metal hit a days low at $3.165 during the Asian session after which a rebound to days high at $3.216 a pound followed. Futures settled higher throughout the last four days, extending current weeks advance to nearly 2% after declining 0.24% the previous one.

The red metal was pressured earlier today as another batch of negative China data spurred concern over commodities demand in the world’s second biggest economy. Coppers demand prospects were hurt as the country’s vast manufacturing sector decelerated to an 11-month low in July according to the flash HSBC/Markit PMI. The index fell to 47.7, compared to June’s final reading of 48.2 and if confirmed in the final report on August 1, it will be the lowest in 11 months. Readings below 50 indicate contraction in the respective sector.

Meanwhile, a sub-index that measures employment fell for a fourth consecutive month below 50 to 47.3 in July, below June’s 47.7 reading and the the weakest since March 2009. Both negative and positive data about the state of the Chinese economy have a strong influence on copper pricing as the Asian country accounts for 40% of global consumption in 2012.

He Shan, an analyst at Galaxy Futures Co. in Beijing, said for Bloomberg: “This number will raise further concerns over Chinese demand. The second half could pose some real challenges.”

However, losses were erased and the metal continued to advance as speculation that China’s government might take steps towards boosting growth in the world’s second biggest economy continued to support prices. On Tuesday, Chinese news organizations reported that Premier Li Keqiang’s cabinet will not tolerate an economic slowdown below 7%, causing China stocks to gain. The prime minister said before the State Council last week that a reasonable 7.5% growth target was set with labor market stability being the main goal. The Asian country accounts for 40% of global copper consumption.

The industrial metal, which is priced in dollars, remained supported after Federal Reserve Chairman Ben Bernanke reinforced Fed’s view at his testimony to Congress last week that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs the central bank’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

This caused the dollar to retreat from a three-year high it hit prior to Bernanke’s comments, thus supporting dollar-denominated raw materials. The greenback tends to trade inversely to commodities as weakening of the currency makes them cheaper for foreign currency holders and boosts their appeal as an alternative investment.