News

A stream of new orders buoyed factory activity in China to an 11-month high in March, according to the official PMI, but credit-constrained smaller manufacturers struggled, suggesting the economy was still losing steam.

Three-month copper on the London Metal Exchange edged up 0.24 percent to $8,465 a metric ton in official midday rings from $8,445, with volumes at around 7,800 lots, a good level while Shanghai markets are closed from Monday to Wednesday for public holidays.

“The market had already discounted that small and medium (Chinese) companies are struggling. so the news that the biggest companies are doing slightly better than expected prompted some short-covering,” said Gianclaudio Torlizzi, analyst at metals consultancy T-Commodity.

But he added, “We don’t buy today’s move as the beginning of a bullish phase because we think the Chinese economy is still slowing down and at the same time the central bank is not yet willing to cut interest rates.”

Also capping gains in metals, the euro zone’s manufacturing sector in March shrank for an eighth month and at a faster pace, adding to signs the bloc is in recession as the downturn spreads to core members France and Germany.

Investor focus turned to the U.S. Institute for Supply Management manufacturing data due later in the day.

U.S. data released on Friday showed U.S. consumer spending increased by the most in seven months in February as households shook off a rise in gasoline prices, leading economists to raise forecasts for first-quarter growth.

“The U.S. ISM data today is likely to confirm economic stabilization once again. We think (metals) prices can stabilize and trade sideways this week,” said Credit Suisse analysts in a note.

They also pointed to falling stocks in China, where data showed a drop in Shanghai copper stocks in the past two weeks from near-decade high levels. LME stocks rose for the third time in about four session but remained near their lowest since July 2008.

LULLED

Price trends in copper, which is up about 12 percent this year as worries over the debt-strainedeuro zone have eased and the U.S. economy has begun to pick up, now mostly depends on China. The rate of slowdown in a country that consumes around 40 percent of the world’s copper will be key to whether the industrial metal will build on or erase its year-to-date gain.

“We should not be lulled into thinking that China has turned a corner … Global conditions continue to be highly uncertain, and given that China’s finished goods inventory has recovered quite steadily, room for further inventory building may be limited,” said Vishnu Varathan, a market economist at Mizuho Corporate Bank.

In other metals traded, aluminum fell 0.24 percent to $2,121 a metric ton in rings from $2,126, while stainless-steel ingredient nickel rose 0.42 percent to $17,900 from $17,825.

State-run Aluminum Corp of China Ltd (601600.SS) (2600.HK) agreed to pay $926 million for a controlling stake in Mongolian coal miner SouthGobi Resources in a deal with mining billionaire Robert Friedland’s Ivanhoe Resources.

The deal marks the first foray into coal by Chalco, which is facing a bleak outlook in aluminum, and will give it access to a large coal producer in neighboring Mongolia.

On nickel, which has risen just 1 percent in the year to date, making it the worst performing metal in the complex to date, analysts are turning decidedly more optimistic, saying the selling has been overdone given changing fundamentals.

“Feedback from the recent days suggests Chinese buyers (are) rushing to restock at what are believed to be low prices. This is reflected in rising physical spot premiums over the last week or so,” said Macquarie analysts in a note.

“The LME nickel price is now trading below domestic prices in China, which makes buying imports more attractive, and currently prevailing price levels are trading below cash production costs for some nickel pig iron production in China.”

Battery material lead fell 1.37 percent to $2,012 a metric ton from $2,040, soldering metal tin was little changed at $22805 from $22,800, while zinc, used in galvanizing fell 1.10 percent to a last bid at $1,979 from $2,001.

The latest LME data showed zinc stocks fell 550 metric tons but remained near their highest level in around 17 years at 896,825 metric tons. Analysts at Macquarie say zinc stocks sitting in warehouses not monitored by the exchange also are expanding as more of the metal is used for financing purposes.