Copper rises on positive Chinese manufacturing data

The metal climbed on the first trading day of the second quarter on Monday, helped by Chinese manufacturing data that helped calm fears about its sharp economic slowdown.

Author: By Manolo Serapio Jr
Posted: Monday , 02 Apr 2012

SINGAPORE (Reuters) -

London copper futures rose on the first trading day of the second quarter on Monday, buoyed by upbeat Chinese manufacturing data that helped calm fears about a sharp slowdown in the world's top copper consumer.

Up about 12 percent this year, copper's fate mostly hangs on China with worries over the debt-strained euro zone easing and the U.S. economy picking up. The rate of slowdown in the world's No. 2 economy will be key to whether the industrial metal can build on or erase its year-to-date price gain.

A stream of new orders buoyed factory activity in China to an 11-month high in March, according to the government's official Purchasing Managers' Index released on Sunday.

"We see this as quite a good indication of strength in the Chinese economy and we are expecting growth in the construction sector this year which will be quite supportive not only of base metals, like copper, but also steel," said Matt Fusarelli, analyst at Australia-based consultancy AME Group.

The data spurred gains across commodities and equities in Asia as it dispelled concerns China, which consumes 40 percent of the world's copper, may be headed for a hard landing.

But Fusarelli said he is not even looking at a soft landing.

"We'd call it business as usual. We have to be pragmatic. The world can't expect Chinese (demand) growth for metals and steel to keep picking up at double-digit rates," he said.

Three-month copper on the London Metal Exchange climbed 0.8 percent to $8,510.75 a tonne by 0330 GMT, rising for a second session and following an 11 percent gain in the first quarter.

Thin trading volumes may exaggerate price movements during the day, with Shanghai markets closed from Monday to Wednesday for a public holiday.

Any optimism from the official Chinese data is also likely to be tempered by the results of a separate private survey by HSBC that showed smaller manufacturers struggled last month, suggesting that the economy is still losing steam.

China's cooling economic growth will cap gains in commodity prices and temper the roaring earnings performance of mining companies, analysts and industry players say. But easier credit and fresh spending on infrastructure will likely drive a strong medium-term outlook.

Investor focus turns to the U.S. Institute for Supply Management manufacturing data due later in the day, which Credit Suisse said "is likely to confirm economic stabilization once again".

Latest U.S. data released on Friday showed U.S. consumer spending increased by the most in seven months in February as households shook off a rise in gasoline prices, leading economists to raise forecasts for first-quarter growth.

A drop in Shanghai copper stockpiles in the past two weeks CU-STX-SGH from near-decade high levels also bodes well for prices. A recent climb in inventories has been blamed partly on a surge in the use of copper as loan collateral in China where credit access has been tight.

"As banks become more aware they're not the only people extending credit with this collateral, they'll become less comfortable doing it. We would expect over the next 12 months commercial banks will become less comfortable with this form of collateral," said AME's Fusarelli.