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London copper slipped on Wednesday ahead of options expiry later in the session, while traders bet on near-term downside given spluttering global growth momentum.
However, signs that China’s easing measures were feeding into the real economy checked the downside prospects for metals.
China’s services sector growth
Activity in China’s services sector accelerated in May, as new business rose at the fastest pace in three years, suggesting Beijing’s easing measures are beginning to take effect.
“Technically copper looks a bit weak. This certainly follows the fundamentals as economic releases have been positive, but not strong enough to sustain the rally we have seen over the past few months,’’ said analyst Daniel Hynes at ANZ in Sydney.
“Still, the whole macro environment is still positive and the change in stance by the Chinese authorities towards an easier policy is quite significant for commodity markets ... any selloff we see is likely to be muted,’’ he added.
Three-month copper on the London Metal Exchange slipped by 0.3 per cent to $6,019.50 a tonne by 0738 GMT after closing a touch firmer in the previous session. Prices fell to the lowest in six weeks at $5,985 a tonne on Monday.
Options expiry
Traders said options expiry was likely to keep the prices pinned at current levels, while cuts to long speculative positions on the LME, and more purchases of at-the-money and downside calls, suggested markets were positioning for price weakness ahead.
“There are large, but largely balancing tonnages of calls and puts open at the $6,000 strike, and with most traders hedged, little move in the copper price is likely before midday,’’ said broker Triland in a note.
The most-traded August copper contract on the Shanghai Futures Exchange ended down 0.2 per cent at 43,530 yuan ($7,024) a tonne.
In a positive for medium term copper demand, China’s housing sales in major cities, measured by floor space, jumped 37.4 per cent in May from a year earlier, helped by government stimulus and developers’ push to clear inventories.
Property is a major driver of China’s copper demand and analysts say housing inventory must be drawn down to kick start new demand.
However, China’s economic growth, already at its slowest in decades, is expected to get worse before it gets better, as economists say it will take time before liberalising reforms turn net positive.
Elsewhere, BHP Billiton, the world's biggest mining company, warned that a global oversupply of commodities that is putting pressure on prices is likely to be prolonged.
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