Copper trading outlook: futures fall on weak China data

Copper fell on Wednesday as a bearish report on Chinas manufacturing PMI spread negative demand outlook in the world’s top industrial metals consumer. Limited positive sentiment on preliminary EU and US data was unable to balance out the retreat.

The New York Mercantile Exchanges COMEX division saw copper May contracts lose 0.39% to trade at $3.0415 per pound at 10:24 GMT, reaching daily high and low of $3.0640 and $3.0375 per pound, respectively. The previous four sessions registered a 2.19% rise.

China holds firm as the dominant factor in copper trading, with data which showed a worse-than-expected slowdown of manufacturing activity in the country hitting hard on the red metal.

According to the preliminary HSBC/Markit report released earlier today, manufacturing PMI for April stood at 48.3 – a fourth consecutive month of regression, falling short of an expected 48.4, and still below the ” 50” contraction/expansion division figure. Also, the Manufacturing Output Index remained below the 50 mark, to register a 48.0 reading for April, cementing the negative outlook.

Hongbin Qu, Chief Economist, China & Co Head of Asian Economic Research at HSBC, commented on the report: “The HSBC Flash China Manufacturing PMI stabilized at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted”.

The report boosted negative sentiment for the world’s second economy, adding to last week’s bearish report of Q1 GDP, which revealed the worst quarterly growth in the last 18 months. In an interview for Bloomberg, Hiroyuki Kikukawa, general manager of research at Nihon Unicom Inc, said:” A slowdown in China’s economic growth is a key factor to put downward pressure on metals”.

Elsewhere today were released the preliminary reports on manufacturing PMI for April for Germany, France and the Eurozone. While the leading EU economy and the single currency bloc scored better than expected, standing at 54.2 and 53.3 respectively, France registered a significant slow-down to 50.9 from 52.1 in March, trailing expectations to post at 51.9.

Later today fresh data from the US is expected to reveal an increase in the pace of growth of manufacturing activity, as April’s PMI is forecast to be 56.0, up from last month’s 55.5. Also supporting copper to some degree, New Homes Sales are expected to have risen to 450,000 in March on an annual basis.

Every positive report on the US economy, though, in addition to providing some security for copper demand, boosts the dollar, which in turn makes dollar-denominated raw materials, such as copper, more expensive for foreign currency holders and lessens their appeal as an alternative investment.

Tim Evans, chief market strategist of Long Leaf Trading Group Inc. in Chicago, said for Bloomberg: “We’ve had a push up in the dollar and that caused a negative price action.”

Technical view

According to Binary Tribune’s daily analysis, in case Copper May futures manage to breach the first resistance level at $3.0682 per pound, they will probably continue up to test $3.0828. In case the second key resistance is broken, the industrial metal will likely attempt to advance to $3.1042.

If the contract manages to breach the first key support at $3.0322, it may continue to slide and test $3.0108. With this second key support broken, the movement to the downside will probably continue to $2.9962.