Stronger Chinese manufacturing data buoys copper

Stronger Chinese manufacturing data buoys copper
Written by Maytaal Angel
Tuesday, July 07, 2009 2:56:48 PM

LONDON (Reuters) - Copper prices bounced on Wednesday as stronger Chinese manufacturing data and a weaker dollar helped boost sentiment, but gains are expected to be capped by a seasonal lull in demand.

Benchmark copper on the London Metal Exchange traded at $5,130 a tonne at 1351 GMT, from a close of $4,970 on Tuesday when it hit a session low of $4,910. China's manufacturing sector extended a steady recovery in June, adding to evidence across Asia that the regional economy is finally strengthening. China is the world's largest consumer of industrial metals.

"The Chinese PMI has helped, everyone is looking to China to remain a positive factor but we are talking about a market slowing as we go into the summer period," said Alex Heath, head of base metals trading at RBC Capital Markets.

The market is tracking the dollar and waiting for the June Institute for Supply Mangement's survey of manufacturing in the United States, the world's largest economy.

The dollar slipped against the euro as improved manufacturing data in the euro zone helped boost the single currency. A lower U.S. currency makes metals priced in dollars cheaper for holders of other currencies.

Also lifting sentiment in copper is falling stocks of the metal in LME warehouses, which at around 266,000 tonnes compare with levels around 500,000 tonnes in early April.

LME copper has gained about 60 percent in the first half of this year, driven primarily by Chinese buying for stockpiles.

HELD TIGHTLY

In other metals, aluminium traded at $1,665 from a close of $1,630 on Tuesday.

Inventories held in LME warehouses fell by 3,525 tonnes but remained near record levels near 4.4 million tonnes.

The long-term demand outlook for aluminium, used in transport and packaging, remains grim because of the turmoil in the auto industry and record stock levels.

Tin traded at $14,600 a tonne against Tuesday's last bid at

$14,150.

Worries about nearby supplies have have pushed the premium for cash material over the three-month contract to around $82 a tonne from a discount of around $40 a tonne in the middle of June.

"Tin is not fundamentally tight but the feeling in the market is it is held tightly," said BaseMetals.com analyst William Adams. He was referring to dominant holdings of tin stocks in LME warehouses earlier this year.

Elsewhere, zinc traded at $1,574 a tonne from $1,545, battery material lead at $1,706 against $1,690.

Steel ingredient nickel hit a nine-month high of $16,200 a tonne and was last at $16,115 from $15,350 on Tuesday.

Traders said the cheaper dollar had triggered a flurry of buying from funds which trade using buy or sell signals from mathematical models.