Copper At 1-Month High On China Data, EU Optimism

Oct 24, 2011 NEW YORK (Dow Jones)--Copper futures surged by 7% on Monday, ending at a one-month high as strong manufacturing data from top consumer China and hopes for a European debt deal sent investors who had bet against the industrial metal rushing to reverse those positions.

The most actively traded copper contract, for December delivery, rose 22.6 cents to settle at $3.449 a pound on the Comex division of the New York Mercantile Exchange, the highest settlement price since Sept. 22.

Copper futures have swung wildly in recent days, dropping by a combined 9% on Wednesday and Thursday as investors bet that the prospects for a speedy resolution to Europe's debt crisis were slipping, only to rise by 13% in the following two sessions as those bets were reversed amid upbeat sentiment and Chinese manufacturing data.

Benchmark copper futures have had daily moves of more than 3% for four consecutive sessions, the longest such streak since January 2009.

"There were a lot of (speculative) shorts in the market, and these shorts have been beaten up," said Nikos Kavalis, an analyst with RBS Global Banking & Markets. "You're seeing increased volatility because you've had these huge flows of investor money in and out."

The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide activity, rebounded to 51.1 in October, from 49.9 the previous month, the bank said Monday. A reading above 50 indicates expanding activity.

Investors are "concerned about Chinese demand at the moment, and that was some good news out of China," said Frank Lesh, a broker and analyst with FuturePath Trading.

The expansion was the first since June. China accounted for almost 40% of world copper consumption last year, and prices for the industrial metal came under pressure this summer from trade and manufacturing data that suggested growth there was wilting under pressure from the financial struggles in the U.S. and Europe.

The weekend's meeting of euro-zone leaders ended with little new detail on plans to stem the currency union's debt crisis, but optimism that a deal was near pushed growth-sensitive assets higher anyway on Monday. Benchmark crude oil futures on Nymex were recently up 4.6% at $91.40 a barrel.

Copper is sensitive to the growth outlook because of its widespread uses across industries, and investors have kept a close watch on developments in the euro zone's effort to stave off a credit crunch. The worry is that a worsening financial crisis there would rattle the industrial economy and curb global metals demand.

Speculative investors have held more bets that copper prices would fall than bets they would rise for seven of the last nine weeks, according to Commodity Futures Trading Commission data. Funds in August broke an almost two-year trend of bullish bets on the red metal.

During the week ended Oct. 11, money managers were net short in Comex copper futures and options by the largest margin since 2009, according to CFTC data, before paring that bearish stance slightly in the latest week.

Copper settlements (ranges include electronic and pit trading):
Oct $3.4470, up 22.80 cents; Range $3.3570-$3.4470
Dec $3.4490, up 22.60 cents; Range $3.2230-$3.4700