By Leia Toovey- Exclusive to Copper Investing News
Copper futures closed down on Thursday, as data pointing toward slowing manufacturing growth put the growth-sensitive red metal under pressure. In the previous session, copper rallied the most in a month on strong US economic data and moves by central banks to increase global financial liquidity.
Poor Chinese manufacturing data trimmed some of the optimism spurred by a move by major central banks to aid distressed European lenders. Early Thursday, China released its official purchasing managers’ index for November, which fell to 49, down from October’s 50.4. A reading above 50 indicated economic growth, while a reading below 50 points to contraction. Copper for three-month delivery on the LME was down 1.3 percent to $7,772.50 a tonne. On the COMEX, copper for December delivery fell 4.1 cents, or 1.2 percent, to settle at $3.522 a pound.
Copper’s modest losses, on the back of a day of strong gains, suggest that the overall sentiment for the metal’s future is positive. Still, analysts have cautioned that they key for the future of copper is whether or not European leaders are able to agree to a plan to tackle the European debt crisis. The next crucial date is December 9, when the European Union Summit is scheduled to take place. The European Central Bank signaled it was ready to take stronger action to fight Europe’s debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation Eurozone.
Copper’s downside was also limited by upbeat data in the United States, the world’s largest economy. The US has churned out some promising economic data; most recently the US’s manufacturing data set a bullish tone. The pace of growth in the US manufacturing sector picked up in November at its strongest level since June, data showed earlier, while US constructions pending increased more than expected in October. Today, a global manufacturing report was released that showed that, unfortunately America is the only economy to be witnessing manufacturing growth. The data in Europe points toward recession-level manufacturing growth and indicates that China’s growth is cooling.
In light of the mixed economic data across the globe, the major investment houses have differing opinions on how copper will perform, in the near term. A year ago today an analysts were almost unanimously bullish over copper’s outlook. Today, commodities powerhouse Goldman Sachs (NYSE:GS) announced that it will maintain its “overweight” recommendation on commodities for the next 12 months, forecasting a 15 percent rally, as potential supply shortages in the physical markets could push markets higher. In a statement, Goldman stated “increasingly tighter physical markets driven by destocking and increasing supply disappointments leave many commodity markets extremely vulnerable to upside in the near to medium term.” Goldman’s competitors, including JP Morgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) have a more bearish outlook for the commodities.
Newmont Mining (NYSE:NEM), the developers of the giant Conga gold and copper mine in northern Peru decided to suspended the project late Tuesday night, saying they were bowing to a demand from the government of President Ollanta Humala. Much of the northern district of Cajamarca has been paralyzed the last six days by general strikes called by people opposed to the development of the Conga project.
Violence in the region escalated Tuesday, as protesters burned an office at the site of the proposed mine and clashes between protesters and police in the area left 17 injured and two arrested. Newmont, has proposed investing $4.8 billion in the new project, which could produce between 580,000 and 680,000 ounces of gold a year and 155 million to 235 million pounds of copper for the first five years. The government had projected it would receive royalties and taxes totaling $800 million annually once the mine was fully operational after 2014. The project was initially approved by former President Alan Garcia and given the stamp of approval by Humala, who took office in July. There was some nervousness over the future of mining in Peru, once Humala was elected. Humala has been critiqued for having a ”left wing- anti-mining” politcal viewpoint. He is also good friends with the controversial leader of Venezuela, Hugo Chavez.
Securities Disclosure: I, Leia Toovey, hold equity interests in Goldman Sachs.