Copper steadied on Monday as investors grew cautious about the US fiscal cliff, having bet the metal up to its highest in six weeks earlier after promising manufacturing data from top consumer China.
The pace of activity in China’s vast manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence that the economy is reviving after seven quarters of slowing growth.
In Europe meanwhile, the contraction in the embattled manufacturing sector eased to an eight-month low in November, although a meaningful recovery still looks a long way off, a survey showed. But continued uncertainty over the US fiscal cliff - $600 billion in government spending reductions and expiring tax cuts set to kick in at the start of next year that threaten to tip the economy back into recession - weighed on investor sentiment. Three-month copper on the London Metal Exchange hit $8,045 a tonne, the highest since October 19, before receding to $7,999.50 a tonne by 1122 GMT versus $7,994 at Friday’s close. Copper is expected to extend an advance on chart-based buying after the price last week broke above the 200-day moving average around $7,905. Prices have rallied almost seven per cent from a more than two-month low hit in November.
“We had a strong rally all last week so there's bound to be profit taking. If the market is already long and there’s good news, it's difficult to rally because who else is left over to buy,” said Societe Generale analyst Robin Bhar. “Fiscal cliff would be a constant worry as we approach the deadline (but) I think we will have further rallies into year-end based on China in particular,” he added. Underpinning metals, the dollar fell to a six-week low versus the euro on signs Germany may be open to a Greek debt write-down. A weak dollar makes dollar-priced metals cheaper for European and other non-US investors.
Looking ahead, markets will focus on US manufacturing data later this session and a November labour report at the end of the week, both of which are expected to show a fourth-quarter slowdown is at hand, even without the “fiscal cliff”. In China meanwhile, sentiment at last week's Asia Week copper conference in Shanghai suggested China's industry was more upbeat about 2013 prospects, one Shanghai trader said, although he warned gains may not prove sustained.
Looking at technicals, copper open interest and prices have been on an uptrend since November 21 , a signal fresh 'long' or buy position holders have entered the market. “While we support higher prices before year end, we are wary of the recent rally as it seems largely driven by technical buying and seems to have ignored the weakness in the Chinese equity markets,” said RBC Capital Markets in a note.
"We will continue to watch the Shanghai Composite Index with interest as a leading indicator for direction of base metal prices." In other metals traded, soldering material tin edged up to $21,919 a tonne from $21,845, while zinc, used in galvanizing fell to $2,041.75 versus $2,047. Latest daily LME data showed 35,925 tonnes of zinc was put 'on warrant' or registered in New Orleans, extending the multi-month backlog there, and making physical supply harder to come by even as headline stocks remain at record levels. Battery material lead fell to $2,235.75 a tonne from $2,252; aluminium fell to $2,090.50 a tonne from $2,094, while stainless-steel ingredient nickel edged up to $17,663 from $17,650.