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Copper Leads Base Metals Lower

Chinese manufacturing and real estate data give a double-punch to copper prices.

LONDON (TheStreet) -- The metals group on the London Metal Exchange (LME) sold off strongly in the early hours of trading Tuesday, led by copper.

Copper for delivery in three months was down 3.7% to $6,680 per ton, its second consecutive decline on rising fears that China may take measures in order to curb liquidity.

The China Federation of Logistics and Purchasing said its Purchasing Managers Index (PMI) slowed to 53.9 in May from 55.7 in April. According to a

Reuters poll

of 10 economists, the median forecast was for 54.0.

The news indicates a weakening of momentum in manufacturing and confirms that GDP growth will decelerate sharply in the second quarter and continue to do so in the third quarter, Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong told



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Moreover, real estate sales in Beijing, Shanghai and Shenzhen fell as much as 70% in May as developers delayed sales because of tightening by the government. These numbers had a direct impact on copper prices.

We have been bearish on

the outlook for copper

for almost one month now.

Copper prices have already lost 6.6% in May and 4.6% in April because of the eurozone crisis. A stronger dollar has only added to the woes as it makes the dollar-priced metals more expensive for purchasers using other currencies.

Adding to the pain was Fitch's downgrade Friday of Spain's long-term foreign and local currency Issuer Default Ratings (IDRs) to AA+ from AAA.

This is a negative development for metals as Europe consumes 20% of global copper production and 15%-25% of aluminum, zinc, nickel and lead production, according to Barclays Capital.

Aluminum for three-month delivery on the LME declined 2.1% to $2,000 a ton, zinc dropped 4% to $1,859 a ton, lead fell 4.1% to $1,775 a ton and nickel lost 3.6% to $20,575 a ton.

Copper inventories managed by the LME have declined 1.8%, while aluminum inventories have increased 1.9% during the last two weeks.