Copper Prices Rebound on China Outlook

NEW YORK (TheStreet) -- Copper prices are seeing a 3% rebound on the Comex this morning after the red metal rose overnight on the Shanghai Futures Exchange due to positive Chinese output data.

The July futures contract is currently up 11 cents at $4.14 per pound after previously settling at $4.03 per ounce. The three-month benchmark for copper on the London Metal Exchange closed Monday at $4.04 per pound. The August copper benchmark on the Shanghai Futures Exchange settled on Monday at $4.69.

A 13.3% year-over-year boost in industrial production in China suggested that demand for metals from the world's largest consumer of copper remained healthy.

To sum up trends today, Chinese growth along with positive U.S. retail sales news were all "very constructive" for copper, said George Gero, RBC Capital Markets precious metals strategist. The news "underpins the recovery here and upcoming Japanese rebuilding."

Gero emailed TheStreet from the 35th Conference of Precious Metals in Texas. "The shipping of copper and silver to India and China is picking up pace according to trade participants here but gold is lagging due to its high price."

At the same time, a recent government report in China indicated that inflationary pressure remain problematic. China's central bank raised reserve requirements for commercial lenders in a continued effort to curb inflation.

"Inflationary pressure in China will eventually have a negative impact on the copper market," said Neil Buxton, managing director for base metals at GFMS. "We're not talking about tomorrow or next week, but as this develops, we'll see potentially high interest rates and tightening of lending, which will inevitably hit the construction sector first," he explained.

Neil noted that today is not just a China story. The copper market must be seen against a backdrop of slower growth around the world, he said. "Over the coming weeks, there's likely to be bouts of weakness rather than a significant rebound in the market. Any rebound will probably be relatively short lived."

The rise in copper today is welcome news but doesn't necessarily predict a repeat for tomorrow. "We're cautious about demand still," said Neil.

He wasn't the only one feeling a bit bearish today. "I remain skittish on base metals in the wake of the overriding trend to tighten and to slow growth in China, one-off news that are good for a trade notwithstanding," said Jon Nadler, Senior Analyst at Kitco Metals.

Neil says that the markets don't justify anything above $9,000 per tonne for copper on a sustained basis. That's about $4.08 per pound.

Copper mining stocks were doing well this morning. Mining company Southern Copper(PCU) is up 1.4% at $32.10. Freeport-McMoRan Copper & Gold(FCX) is up 2.9% at $49.12.

-- Written by Chao Deng in New York.

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