High production, poor housing data set to weigh on copper

Despite a lift from the latest manufacturing data, Chinese copper futures are primed for a drop Monday, as weak housing data and an increase in copper production are set to weigh on the market.

The most-traded copper contract for January delivery rose by 270 yuan ($44.14), or 0.57 percent, from Thursday on the Shanghai Futures Exchange (SHFE), closing at 47,390 yuan per ton Friday. The copper price was up 1,090 yuan, or 2.35 percent, on a weekly basis.

The benchmark three-month copper contract on the London Metal Exchange (LME) lost 0.05 percent after the Chinese market closed Friday, falling to $6,684.5 per ton, yet the contract still ended up rising 0.22 percent for the day and 0.83 percent for the week.

Domestic copper futures posted modest rebounds Thursday and Friday, thanks largely to better-than-expected manufacturing activity figures across the country. Data released Thursday showed that the flash HSBC/Markit manufacturing Purchasing Managers' Index (PMI) rose to a three-month high of 50.4 for October, up from a final reading of 50.2 for September.

But analysts believe the PMI figure may not be strong enough to support a continuous gain in copper prices this week, especially in the wake of the release of new home prices in major cities.

Average home prices in 70 major Chinese cities fell by 1.3 percent year-on-year in September, the first decline in 21 months, according to figures released Friday by the National Bureau of Statistics (NBS).

The continuous sluggishness of the domestic housing market is likely to cast a shadow over market sentiment as investors are concerned about weaker demand in the coming months.

The copper industry also appears to be facing mounting supply pressure. In September, China's refined copper production jumped 5 percent from August to 715,000 tons, marking a new high, according to the NBS.