RTRS:METALS-Copper retreats on downbeat European factory data
* Copper rose during Asian trading on China flash PMI data
* Markets reverse after weak European manufacturing data
* More losses seen as funds sell short
By Eric Onstad
LONDON, July 24 (Reuters) - Copper gave up gains on Tuesday after weak
European factory data cancelled out optimism that economic growth in top metals
consumer China may recover after upbeat news about the manufacturing sector
there.
Three-month copper on the London Metal Exchange was virtually
unchanged, up 0.06 percent to $7,405.25 per tonne by 1030 GMT, after earlier
rebounding 1.3 percent to an intraday high of $7,494.
On Monday it had slid to a low of $7,360 a tonne, the weakest level since
June 28 after worries that Spain might need to resort to a full sovereign
bailout.
Early on Tuesday, Asian investors lifted markets with bargain hunting after
China's flash factory purchasing managers index rose in July to its highest
level since February, boosted by a pick up in output and signs of improvement in
new export orders.
"Perhaps it's the first sign that we're beginning to see some of the
(central bank) easing measures from the second quarter feeding through," said
analyst Wiktor Bielski at VTB Capital in London.
That upbeat news was overshadowed, however, when business surveys from
industrial powerhouse Germany and other euro zone nations showed the bloc's
private sector shrank for a sixth month in July as manufacturing output
nosedived, adding to the likelihood that the bloc will slump back into
recession.
Also weighing on the market was a move by Moody's Investors Service late on
Monday to change its outlook for Germany, the Netherlands and Luxembourg to
negative from stable and another surge on Tuesday in Spain's short-term debt
costs, increasing pressure for a major bailout.
"The Moody's downgrade in conjunction with the German PMI we saw this
morning offset any positive sentiment caused by the Chinese PMI number," a
London trader said.
"The Chinese PMI is a double-edged sword. You get a good PMI number and the
PBOC (China's central bank) has less impetus to ease policy."
Copper is likely to head further south to test key support of $7,200 per
tonne after recently failing to break upside resistance of $7,800, the trader
added.
On the Shanghai Futures Exchange, the most active November copper contract
gained 0.2 percent to close at 54,500 yuan ($8,500) per tonne
recovering from a three-week low of 54,170 yuan earlier in the session.
Market players in China are also waiting to see if property subsidies given
by the government of the eastern city of Nanjing to first-home buyers to will be
the first of a wave of similar measures in second-tier cities.
"It's hard to tell if Nanjing's move is a positive for the base metals
market yet, since the central government may clamp down on this later. We need
more time to see how it turns out," said CIFCO Futures analyst Zhou Jie.
FUND SELLING
The other base metals are also likely to be vulnerable to further losses,
even though many of them are below marginal costs, Bielski said.
"Most of the downside is coming from fund short-selling, so as long as the
charts are looking supportive and as long as the fundamentals are not, they'll
keep short-selling until conditions change. So there could easily be more
downside."
Aluminium could be one of the weakest since there has been no sign that
excess capacity in China is being cut amid power subsidies from provincial
governments and robust physical premiums, Bielski added.
"I have to think that aluminium is still the one that looks pretty
vulnerable because there's so much capacity out there that should be closing
that is being bailed out by these record high premiums."
Three month aluminium futures lost 0.3 percent to $1,872 a tonne
after touching an intraday peak of $1,886. Aluminium has shed about 2 percent so
far this month.
In other metals, LME nickel edged down 0.1 percent to $15,580 a
tonne after slipping as low as $15,450 on Monday, its lowest since July 2009.
Soldering material tin was the biggest loser, giving up 2.9 percent
to $17,820 a tonne, a fresh low since September.
Battery material lead shed 0.3 percent to $1,855.25 a tonne after on
Monday hitting its lowest since early July at $1,851 a tonne.
Zinc, used in galvanizing, fell 0.4 percent to $1,807 a tonne after
on Monday touching the weakest level since late June at $1,801.50 a tonne.
Metal Prices at 1033 GMT
Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
Metal Last Change Pct Move End 2011 Ytd Pct
move
COMEX Cu 337.40 -0.70 -0.21 344.75 -2.13
LME Alum 1872.00 -6.00 -0.32 2020.00 -7.33
LME Cu 7398.75 -2.25 -0.03 7600.00 -2.65
LME Lead 1855.00 -5.00 -0.27 2034.00 -8.80
LME Nickel 15610.00 10.00 +0.06 18650.00 -16.30
LME Tin 17811.00 -539.00 -2.94 19200.00 -7.23
LME Zinc 1806.50 -7.50 -0.41 1845.00 -2.09
SHFE Alu 15400.00 45.00 +0.29 15845.00 -2.81
SHFE Cu* 54700.00 130.00 +0.24 55360.00 -1.19
SHFE Zin 14530.00 75.00 +0.52 14795.00 -1.79
** Benchmark month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07
