Copper fell to a nine-week low in London on concerns about the outlook for demand after manufacturing in China, the world’s largest user, expanded at a slower pace last month.
A purchasing managers’ index released today by HSBC Holdings and Markit Economics fell to a six-month low of 55.4. The drop indicated that government efforts to prevent China’s economy from overheating may be starting to bite.
“The second half of the year is going to be less upbeat on prices than the first half,” said Michael Jansen, an analyst at JPMorgan Securities in London. “China is going to slow from very high numbers.”
Copper for delivery in three months fell $195, or 2.6 per cent, to $7,235 a tonne at 9:49 am on the London Metal Exchange. The contract slid as far as $7,233.50, the lowest intra-day price since February 26. Futures for July delivery lost 0.3 per cent to $3.284 a pound on the Comex in New York.
Copper producers BHP Billiton and Rio Tinto Group paced declines in the UK benchmark FTSE 100 Index after Australia unveiled a plan to impose a 40 per cent tax on resource companies’ profits. The shares didn’t trade yesterday, when UK financial markets including the LME and the London Stock Exchange were closed for a national holiday.
Lending Boom
Concern about a potential weakening of Chinese demand contributed to LME copper’s 4.6 per cent decline in March after two monthly gains in a row. The country’s economy expanded 11.9 per cent in the first quarter, the fastest pace in almost three years, and property prices rose by a record in March after an unprecedented boom in lending.
China’s policy makers two days ago ordered banks to hold more of their assets as reserves for the third time this year. They have also sought to rein in the nation’s property market. Construction uses a quarter of all the copper produced, according to the Copper Development Association.
“I don’t think China Inc. will fall off a cliff,” JPMorgan’s Jansen said. “It is just that property has been a vehicle for wealth creation over the past five to 10 years.”
BHP, the world’s biggest mining company, dropped as much as 4.1 per cent, and Rio Tinto fell as much as 5.2 per cent. Industry expansion and acquisitions plans may stall because of the plan to increase taxes on mining companies whose profits have surged $74 billion in the past decade.
LME Stockpiles
“These proposed taxes reduce the very cash flows that are reinvested in maintaining or expanding existing Australian mines and in developing new operations,” said Mick Davis, chief executive officer of copper producer Xstrata.
Inventories of metal tracked by the LME fell for a sixth day, slipping 0.5 per cent to 496,975 tonnes, the lowest level since December 30. Bookings to remove metal from warehouses slid for a fifth day, dropping 8.9 per cent to 24,075 tonnes.
Copper stockpiles monitored by the Shanghai Futures Exchange rose for a fourth week to the highest since at least 2003, data from the exchange showed on April 30.
Nickel for three-month delivery on the LME fell 0.5 per cent to $26,170 a tonne. Immediate-delivery prices will average $21,250 a tonne in the third quarter, according to the median estimate of 17 analysts surveyed by Bloomberg News.
“We think prices will soften, peaking in the second quarter and gradually easing,” said David Wilson, director of metals research at Societe Generale SA. Nickel, two-thirds of which is used in stainless steel, has gained 41 per cent this year, the most among the six main metals traded on the LME.
Global output of nickel will jump 6.8 per cent this year, the most since 2000, said Bank of America Merrill Lynch. Still, worldwide demand will exceed production by 17,500 tonnes, according to the median estimate of 14 analysts in the Bloomberg survey between April 26 and April 30.
Aluminum fell 2 per cent to $2,211 a tonne and tin slipped 0.1 per cent to $18,230 a tonne.
Lead dropped 2.7 per cent to $2,171 a tonne and zinc declined 2.1 per cent to $2,236 a tonne.
