Copper tops $3.50 after 'significant pick-up' in Chinese investment

Spot copper topped the $3.50 a pound mark for the first time in a week on Friday as the metal – the bellwether for the industry – reacted to economic news from China showing growth slowing to 7.6% in the second quarter.

While a deteriorating growth picture has long been forecast for the world's second largest economy, traders took heart from the fact that investment in the economy picked up sharply according to official figures released today.

The fortunes of copper is closely tied to overall economic growth because the metal is used in so many sectors including construction, transportation and electricity and China consumer more than 40% of the world's copper.

Most analysts now see Chinese growth rebounding over the rest of the year.

Ken Peng, an economist with BNP Paribas in Beijing tells FT:

“The expectation for weakness in the second quarter was pretty strong. But the investment number is the surprise. There appears to have been a significant pick-up. That is policy beginning to work”, said Ken Peng, an economist with BNP Paribas in Beijing. “We are looking for a small rebound in the third quarter and a bigger rebound in the fourth quarter.”

Xiang Wenbo, vice chairman of excavator maker Sany Heavy Industry tells Bloomberg: “The government has enough capability to maintain economic growth, which is China’s biggest advantage. China can stimulate expansion through fixed- asset investment and real estate and maintain a growth rate of 7.5 percent."

Commerzbank analyst Eugen Weinberg spoke to Reuters: "I think we will bottom out. The future is bright for China. OK Europe is a disaster and U.S. growth has slowed (but) it's in the price and central banks (will likely) try to counter the trend with more liquidity."

Last week China surprised the market with a second cut in interest rates in less than a month. A recent steep drop in inflation numbers also means Chinese monetary officials have enough room to provide further stimulus for the economy.

Front month copper was trading at $3.50 even a pound in afternoon dealings on the Comex in New York, up around 2.5% on the day.

The copper price is up 5% over the past month ago but today's price still represents a 20% pullback from historic highs hit at the end of July last year of a shade under $4.50 a pound (more than $10,000 a tonne).

At around $3.50 the price is well within marginal costs which for copper producers are in the $6,000 – $7,000 a tonne range or roughly $2.75 – $3.15 a pound.

On the fundamental side, the outlook for copper has also improved. Chile's state-owned copper giant Codelco, which dwarfs other global producers of the metal, said in June  it has not seen the effects of a slowdown in China on its copper exports nor the prices it receives.

The International Copper Study Group also  released data showing the global market for refined copper fell into a deficit of 236,000 tonnes during the first quarter versus a deficit of 61,000 tonnes at the start of 2011 as miners struggle with labour issues and new supply remains slow to come to market.