Copper trades near 5-week low as China PMI weakens demand outlook

Investing.com - Copper prices traded close to the lowest level in five weeks on Monday, after a pair of reports on China's manufacturing sector failed to ease concerns about a slowdown in the world's second-largest economy.

On the Comex division of the New York Mercantile Exchange, copper for July delivery inched up 0.5 cents, or 0.19%, to trade at $2.733 a pound during European morning hours. Prices held in a range between $2.728 and $2.741.

On Friday, copper prices slumped to $2.724, a level not seen since April 24, before settling at $2.728, down 3.9 cents, or 1.43%.

Futures were likely to find support at $2.694, the low from April 24, and resistance at $2.784, the high from May 29.

A pair of manufacturing reports released on Monday underlined concerns over the health of China's manufacturing sector.

The HSBC final manufacturing index for May came in at 49.2, remaining below the 50-point level that separates growth in activity from contraction for the third straight month.

Meanwhile, the official China's manufacturing purchasing managers' index inched up to 50.2 last month from 50.1 in April, broadly in line with market expectations.

China's official non-manufacturing PMI, also released on Monday, fell to a seven-year low of 53.2 in May from 53.4 in April.

China's economy grew at the slowest pace in six years in the first quarter, underling speculation policymakers will have to introduce further easing measures to jumpstart the economy amid lackluster growth.

Since November, the People's Bank of China has introduced a series of stimulus measures, including lowering interest rates three times and cutting the reserve requirement ratios of major banks twice, in order to spur economic activity and boost growth.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year. Copper traders view Chinese factory activity as an indicator of the nation's copper demand, as the red metal is widely used by the sector.

Elsewhere, gold futures for August delivery dipped $1.50, or 0.13%, to trade at $1,188.30 a troy ounce, while silver futures for July delivery shed 6.3 cents, or 0.38% to trade at $16.63 an ounce.

Investors looked ahead to the release of key data later in the session for further indications over the timing of a U.S. rate increase and the strength of the economy.

The Institute of Supply Management was to release data on manufacturing activity for May later Monday. Market players are also focusing on Friday's nonfarm payrolls report.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.31, not far from the five week highs of 97.88 hit last Wednesday.

The greenback has been well-supported in recent sessions amid speculation the Federal Reserve was on track to raise interest rates in September.

Economic data released in the past week, including reports on inflation, new home sales, business investment and consumer confidence all indicated that the economy is gaining momentum after a slowdown in the first quarter, supporting the case for higher interest rates later this year.

In the currency market, the euro slipped lower against the dollar on Monday as ongoing concerns over the prospect of a Greek debt default weighed.

Concerns over a possible default have mounted since Athens warned last month that it will be unable to make the repayment if a cash-for-reforms deal with its international lenders was not reached by then.

Greece is due to make a €305 million payment to the International Monetary Fund on June 5.