Economic statistics cause copper value concerns

Economic statistics cause copper value concerns

China’s purchasing managers’ index figures overshadow potential strike on supply side.

July 31, 2018

Tense labor-management negotiations at Chile’s large Escondida copper mine provided speculators with a reason to back the red metal late in the week of July 23-27. However, that supply side concern is being overshadowed by current and pending Chinese economic data.

An online report by Reuters notes that copper’s price on the London Metal Exchange (LME) fell by 1.9 percent Monday, July 30, closing at $6,176.50 per metric ton ($2.80 per pound). Year to date, copper has lost 14.7 percent of its value on the LME, according to Reuters.

The red metal’s value also fell 1.4 percent on the Shanghai Futures Exchange (SHFE) that Monday. 

The Monday trading was based on concerns about what July Chinese purchasing managers’ index (PMI) figures might reveal. Tuesday morning in China, the Chinese National Bureau of Statistics announced its Manufacturing PMI fell to 51.2 for July, down from 51.5 in June and just slightly below market estimates of 51.3 for the month.

John Browning, who is based in Shanghai for trading firm BANDS Financial Ltd., delved more deeply into the PMI figures for a daily letter to his clients, finding the overall index figure to be “the weakest reading since February [2018].”

In terms of component parts of the PMI, Browning writes that output and new orders “are at their lowest levels in five months,” while other “key elements [are] below 50 [and] are in contraction territory.” Among those sub-categories: new export orders at 49.7; employment at 49.2; raw materials in stock at 48.9; and, perhaps most alarmingly, orders in hand 45.7. He writes, “Taken together [this] may point to further trouble ahead.”

Browning and many other market watchers say they tend to more closely watch the private sector Caixin PMI figures for China. Those Caixin manufacturing PMI figures for July were released Wednesday, Aug. 1, and, according to Browning, they fell to what he calls “an eight-month low of 50.8, down from 51 in June.” Browning also notes that within the Caixin statistics, “both output and new orders grew at softer rates, while new export orders shrank at the steepest pace in 25 months.”

in his July 30 daily email to clients, Gianclaudio Torlizzi of Milan-based T-Commodity notes LME copper’s value rose by 2.4 percent the week of July 23-27, and “the most traded contract on the SHFE also saw its first weekly gain in seven weeks, up 3.5 percent.”

Torlizzi adds, “Supporting copper prices was the threat of a strike at Escondida in Chile, the world's largest copper mine, after its operator BHP made a final offer to workers with a wage rise that was less than unions demanded.”