Base Metals Diverging – Copper Down While Palladium Gains

Copper remains near its recent bottom with no hopes at the moment. Copper is trading at 2.302 well below its average trading range. Demand for copper seems to be easing as Chinese data continues to disappoint, not even helped by the closure of the Glencore mines. The strength of the US dollar is also weighing on the orange metal.

Copper has dipped on worries about demand in the world’s top metals consumer after data showed the biggest fall in China’s factory activity since the financial crisis. The metal used in construction and electrical generation initially bounced from near four-week lows as short sellers took profits but bearish sentiment eventually got the upper hand once the short-covering had run its course. China’s factory activity unexpectedly shrank to a six-and-a-half-year low in September, intensifying fears that a slowdown in the world’s second-largest economy will spread. China consumes nearly half the world’s copper.

China’s factory activity has now shrunk for seven months in a row, and the latest survey showed conditions in September deteriorated from August by almost every measure.

In supply-side news, Newmont Mining Corp’s Indonesian copper export permit will not be renewed as the US miner has failed to meet government stipulations for developing a domestic smelter, officials said.

Australian company CuDECO is moving forward with a 10-year open pit mining project in north west Queensland, despite a slump in the price of copper. Work at the Rockland’s Project, west of Cloncurry, stalled in June when the company was forced to renegotiate how it would finance the project.

“We are confident supply will tighten in the next few months because production cuts have already been announced. This should cause the market to tighten and allow the copper price to recover,” said Commerzbank in a note.

Zinc was the best performer, climbing 1.4 per cent to finish at $1,651 a tonne, eroding steep losses seen since last week on bets inventories would rise as Glencore sold down its stock. Traders were taking profit from a zinc-lead switch trade, buying back zinc they had sold and selling lead, a trader said.

Aluminum sagged 0.8 per cent to close at $1,576 a tonne as analysts said fundamentals were worsening with a glut of overproduction and inventories keeping pressure on prices. Consultant Torlizzi of T-Commodity in Milan told the Reuters Global Base Metals Forum that technical signals were also negative.

Palladium added $6.45 to 655.05 bouncing back in the morning session. Palladium prices and commodity-related exchange traded fund surged to over a two-month high after China pledged drastic measures to cut emissions and confidence in diesel engine vehicles was tainted in the wake of the Volkswagen fallout. The ETFS Physical Palladium Shares rose 5.8%, jumping over its 50-day simple moving average. The precious metal, which is used in pollution-control devices for automobiles, strengthened after China stated it will accelerate construction of electric car charging facilities.