Forexpros – Copper futures came under heavy selling pressure on Monday, as a combination of dismal manufacturing data from the euro zone and China and growing concerns over the euro zone’s ongoing debt crisis dampened sentiment on the industrial metal.
On the Comex division of the New York Mercantile Exchange, copper futures for July delivery traded at USD3.639 a pound during European morning trade, tumbling 1.8%.
It earlier fell by as much as 1.95% to trade at a two-day low of USD3.636 a pound.
Appetite for growth-linked assets weakened after Markit said that its preliminary euro zone manufacturing purchasing managers’ index fell by 1.7 points to a seasonally adjusted 46.0 in April from a final reading of 47.7 in March. It was the lowest level since June 2009.
The report came after Markit said that its German manufacturing purchasing managers’ index declined to a seasonally adjusted 46.3 from a final reading of 48.4 in March. Analysts had expected the index to rise to 49.0 in April.
Reduced levels of output, new orders and employment meant that the headline German manufacturing PMI fell to its lowest since July 2009.
A separate report showed that while France’s manufacturing index ticked higher, the country’s services PMI slowed to its slowest pace in six months.
The data came after a report showing that Chinese manufacturing activity remained in contraction territory in April for the sixth consecutive month, fuelling concerns over a slowdown in the world’s second largest economy.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe.
China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.
Copper is sensitive to the economic growth outlook. The industrial metal is regarded as a leading indicator of the global economy due to its widespread uses in construction and manufacturing.
Meanwhile, a political crisis in the Netherlands and uncertainty over the outcome of the French presidential election added to fears over the outlook for the euro zone.
Also weighing on risk sentiment, Spanish 10-year yields rose above the key 6.0%-level in early trade Monday, hitting 6.05%.
In its latest monthly report published earlier, the Bank of Spain said it believes that the country’s GDP fell by 0.4% in the first three months of 2012. That follows a 0.3% contraction in the fourth quarter of 2011, and zero growth in the third quarter of last year.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout.
Europe as a region is second in global demand for the industrial metal. Prices have tracked investor sentiment toward the euro zone’s debt crisis in recent months.
The news prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to traditional safe haven assets like the U.S. dollar.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.3% to trade at 79.52.
A stronger dollar reduces demand for raw materials as an alternative investment and makes dollar-priced commodities more expensive for holders of other currencies.
Elsewhere on the Comex, gold for June delivery shed 0.55% to trade at USD1,633.65 a troy ounce, while silver for July delivery dropped 1.25% to trade at USD31.31 a troy ounce.
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