Copper Prices Gain Despite Rising Risk

NEW YORK (TheStreet) -- Copper futures were popping Tuesday as the markets digested a mix of economic numbers.

Copper for July delivery was rising 1.1% to $4.24 Tuesday morning.

UK manufacturing data grew less-than-expected in April and fell to its weakest level in seven months, while Russian manufacturing slowed in the month to its weakest point since November. In Japan, March factory production fell by a record 15.3% from February, and household spending fell 8.5% year-over-year.

Still, European manufacturing growth staged a surprise increase in April, thanks to stronger production in Germany and France -- albeit inflation readings sped up. In the U.S., the April Institute of Supply Management manufacturing index came in better than expected.

Overall, MF Global analysts take a cautious stance on metals and expect weakness in the weeks ahead.

"We suspect that the full impact of higher energy prices and its impact on accelerating inflation has yet to play itself out," an MF Global report said. " This will likely leave policy makers little choice but to raise interest rates even further heading into the second half of the year, not exactly a conducive environment for a runaway bull market in metals."

After more visits to warehouses and market players over recent weeks, Standard Chartered analysts Judy Zhu and Dan Smith are warning that the downside risks to copper are building due to large stocks and soft demand in China. Their data shows that copper output to meet downstream demand rose only 4% year-over- year in March, far below the average 17% year-over-year output between 2005 and 2010.

"Meanwhile, copper stocks at Shanghai Futures Exchange warehouses remain historically high, although they have fallen from their peak," the analysts say.

Copper plays were mostly trading in negative territory.

Freeport-McMoRan Copper & Gold(FCX) was falling 1.4% to $53.56, Southern Copper Corporation(SCCO) was down 2.2% to $35.34 and Encore Wire (WIRE) was down 2.1% to $26.56. Taseko Mines(TGB) was falling 1.9% to $5.08.

Mining equipment maker Bucyrus International(BUCY) was flat at $91.40, while peer Joy Global(JOYG) was down 3.9% to $96.99. Caterpillar(CAT) was also in the red, with the mining equipment maker losing 0.7% to $113.57.

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-- Written by Andrea Tse in New York.

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