Copper futures in London and New York trade softer for a second day but remain above recently established support levels, in High Grade at $3.54 a pound and LME at $7850 a ton. The latest weakness once again being driven by the prospect of soft demand in China, the world’s top consumer of metals, after data revealed another monthly drop in China’s manufacturing PMI index. It signalled contraction after falling to 48.8 in May, the lowest reading since last December, while missing estimates of a 49.5 print.
It highlights the current challenge industrial metals as well as iron ore is going through as the post-pandemic recovery in China has proven to be much less commodity intensive than earlier government supported growth sprints. In addition, uncertainty about the US debt ceiling, the direction of short-term rates and recent dollar strength, not least against the Chinese renminbi have all acted as a drag on the market, allowing speculative short sellers to gain control of the price action.
The copper market has responded to these developments by falling back to levels seen last November when the foundation for the China reopening rally was laid. From a low then around $3.54 a pound, the HG futures contract went on to reach a March $5.04 a pound high before returning to the starting point. As per the two charts below, developments in China remain key drivers with PMI and Renminbi weakness driving prices lower while supporting increased short-selling interest from money managers such as hedge funds and CTA’s.