Copper rises on China demand, U.S. budget stalemate weighs

Copper extended its weekly advance on Tuesday as expectations for a higher post-holiday demand and expanding service sector in China offset the continuing budget impasse in the U.S. President Obamas comments that he would support a short-term increase of the nations debt limit also relieved some pressure.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December rose by 0.43% to $3.311 per pound at 9:04 GMT. Prices held in range between days high and low of $3.314 and $3.287 a pound respectively. The industrial metal rose by 0.1% on Monday and extended its weekly advance after falling by 0.6% in the preceding five-day periods.

Copper advanced this week amid expectations for increased demand in China after markets reopened following the end of the Golden Week holiday. Inventories tracked by the London Mercantile Exchange fell for a 23rd session to 523 425 tons yesterday, the lowest since March.

The metal also drew some support after a private survey showed that China’s service sector expanded in September but with a slower pace than in August. The HSBC China Services Business Activity Index marked a moderate rate of increase, posting at 52.4 in September, down from 52.8 in August.

In the meantime, the HSBC China Composite Output Index, which covers both the manufacturing and service sectors, stood at 51.2 in September, down from 51.8 in August. However, output growth has now been recorded for a second month with manufacturers reporting a further increase in order book volumes. At service providers, new order growth slowed from August but nevertheless marked an improvement. News regarding the strength of the Chinese economy have a strong influence on copper pricing as the country’s vast industrial sector accounts for around 40% of global copper consumption.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “China’s services activity growth appears to be stabilising at a faster pace than in 2Q. This led to a renewed expansion of employment from the contraction in August. Combined with the gradual improvement of the manufacturing PMI, the Chinese economy is still on the way to a modest recovery. But a more consolidated and sustainable recovery requires structural reforms.”

Last week, a government report by China’s National Bureau of Statistics showed that the Asian country’s service sector expanded at the fastest pace in six months in September. Chinese Non-Manufacturing PMI rose to 55.4 in September, surpassing the preceding month’s reading of 53.9.

Gains however were limited as the U.S. government shutdown entered a second week, threatening to curb economic expansion in the fourth quarter. According to JPMorgan analysts, every week of shutdown reduces the economic growth in the last three months by an annualized 0.12%.

Senate Democrats are planning a test vote this week to allow President Obama raise the nation’s debt limit unless two thirds of Congress dissent. Some pressure was relieved on Monday after Obama said he would support a short-term increase of the U.S. borrowing limit to avert an unprecedented debt default.

Tetsu Emori, the chief fund manager at Astmax Asset Management Inc., said for Bloomberg: “Investors remained on the sidelines to avoid risk until the U.S. budget and debt limit issues are resolved.”