Copper dipped on Monday as initial euphoria sparked by last week's EU summit deal to tackle the debt crisis faded and as data showed a factory slump had deepened in June in China, Japan and the euro zone.
Business surveys on Monday showed manufacturing activity in the euro zone held at its lowest level since June 2009, with factories preparing for worse to come as jobs were cut at the fastest rate in two-and-a-half years.
In Asia, meanwhile, a factory slump in China and Japan deepened in June as crumbling orders from abroad dragged activity to seven-month lows, heightening worries that the health of the global economy is deteriorating.
The data took some of the shine off last week's policy breakthrough in the euro zone, where leaders agreed to allow their new bailout fund to inject money directly into banks from next year and intervene in bond markets.
Three-month copper on the London Metal Exchange was down 0.45 percent at $7,655.25 per tonne by 11:24 SA time, after surging 4.1 percent on Friday, its largest single-day rise since November 30.
“We've got a heavy week of economic data across the world and we didn't start well, so markets are going to be a bit nervous,” said BNP Paribas analyst Stephen Briggs.
He added: “I suspect markets are going to look again at what was agreed on Friday with the euro zone, and the risk is they will conclude that this isn't the silver bullet and a lot more needs to be known.”
Spanish and Italian government bond yields continued to fall on Monday, but the euro dipped against the dollar as summit-deal euphoria faded.
A weak euro makes dollar-priced metals more costly for European investors.
“The EU summit also lifted industrial metals prices. Being the most cyclical markets, industrial metals may find it more difficult than other commodities to sustain their latest gains as China's manufacturing activity has yet to improve,” said Credit Suisse in a note.
BARGAIN HUNTING IN CHINA
Market players noted that copper demand had improved in China in recent weeks as bargain-hunting consumers restocked a bit to take advantage of lower prices, but overall demand remained low.
“Investors are less focused on the Chinese physical copper market for now as things are still gloomy, with downstream industry orders still sluggish,” said Orient Futures derivatives director Andy Du.
In the United States, consumer spending growth ground to a halt in May as auto purchases flagged, while confidence ebbed to a six-month low in June, the latest signs of trouble for the economy.
Federal Reserve officials on Friday said they were keeping an eye out for any signs that slowing growth was raising deflation risks but differed on how worrisome sluggish job markets were for the modest US economic recovery.
In other metals traded, packaging metal aluminium was little changed at $1,910.75 a tonne from a close of $1,911, recovering from last week's two-year lows, which resulted from news that China's top aluminium-producing province, Henan, had cut electricity prices for smelters.
Traders in China came back into the market after realising the tariff cuts were too small to boost additional supply and that top producer Aluminum Corporation of China Limited had raised its long positions in Shanghai aluminium even as prices fell.
“It's clear they are prepared to support domestic aluminium prices by buying or by cutting production,” said a trader.
Soldering metal tin rose 0.80 percent to $18,900 a tonne, while battery material lead rose 0.80 percent to $1,876 a tonne, nickel
rose 0.07 percent to $16,742 a tonne, and zinc fell 0.13 percent to $1,877.50. - Reuters