SF: Copper Falls for Second Day as Chinese Manufacturing May Shrink
July 21 (Bloomberg) -- Copper fell for a second day in London on concern manufacturing may shrink for the first time in a year in China, the world's largest consumer of the metal, indicating weaker demand.
A preliminary reading of the Purchasing Managers' Index reported by HSBC Holdings Plc and Markit Economics today showed a drop to 48.9 for July, a 28-month low. China's central bank has raised interest rates to curb inflation. European manufacturing and services slowed more than estimated as governments attempt to contain the region's debt crisis.
"China has been struggling with tight credit for some time," said Julien Garran, an analyst at UBS AG in London. "Now we've also got Europe deteriorating, slowing demand in the West, as well as in other emerging markets. For us, that means the fundamentals are turning down."
Copper for three-month delivery dropped $73, or 0.7 percent, to $9,682 a metric ton by 9:43 a.m. on the London Metal Exchange. Copper for September delivery declined 0.7 percent to $4.4045 a pound on the Comex in New York.
The metal is now a "sell," according to Garran. Still, HSBC Holdings Plc raised its estimate for copper's price next year by 13 percent to $3.86 a pound and said supply of the metal will fall 143,000 tons short of demand in 2011, more than double its prior 70,000-ton projection.
Euro Region
A final July reading for the Chinese PMI is due Aug. 1. A level below 50 indicates contraction. A composite index based on a survey of euro-area purchasing managers in both services and manufacturing slid to 50.8 from 53.3 in June, Markit said. Economists forecast a drop to 52.6 in a Bloomberg News survey.
Chinese imports of refined copper declined 16 percent from a year earlier to 178,638 tons in June, customs figures showed. Total imports in the first half tumbled 30 percent to 1.08 million tons.
Copper "fundamentals will not provide a clear indication for another 12 months, leaving prices at the mercy of risk sentiment," HSBC analysts said in a quarterly report today.
Aluminum for three-month delivery on the LME declined 0.8 percent to $2,515 a ton. Global cost inflation will support the lightweight metal, according to HSBC. The bank said aluminum remains its "preferred play, with Chinese domestic inflation only adding to pressure from higher energy prices at the top end of the cost curve."
Zinc declined 0.5 percent to $2,441 a ton. Orders to draw the metal used to rust-proof steel from LME warehouses, or canceled warrants, jumped 47 percent to 101,925 tons.
Lead slipped 0.1 percent to $2,691.75 a ton, nickel dropped 0.8 percent to $23,849 a ton and tin declined 1 percent to $28,026 a ton.
