Copper futures drop on persistent demand weakness

Copper futures ended lower on the Shanghai Futures Exchanges (SHFE) Friday due to the ongoing dull demand season, according to a report by London-based Metal Bulletin (MB).

"Copper prices fluctuated on the night market as the London Metal Exchange prices rose," MB reported, citing an unnamed senior broker.

The most-traded copper futures for September ended at 49,520 yuan ($7964.49) per ton on the SHFE on Friday, down 0.14 percent compared to Thursday.

The market rose 2.27 percent compared to last week. The trading volume decreased by 47,052 lots Friday from Thursday's 313,756 lots.

Copper futures kicked off the week at a high level because of positive signals from China' factory activities, according to Reuters. The preliminary HSBC/Markit Flash China Manufacturing Purchasing Managers' Index increased to 50.8 in June, hitting the highest level in the recent seven months, according to HSBC on Monday. The 50-point level separates growth in factory activity from contraction.

"The stimulus measures of the past three months are really working and having a positive impact on the overall economy," Reuters said in a report, citing Helen Lau, senior mining analyst at Hong Kong-based UOB-Kay Hian Securities.

On the other hand, bankers are realizing they will face more risks in lending to those enterprises which use metals such as copper as collateral, mainly due to an investigation over a suspected fraud at the Qingdao Port in Shandong Province, according to a report from China Nonferrous Metals News (CNMN) last week.

Chinese bankers are expected to tighten lending to such copper-backed enterprises. In that case, more copper in the bonded inventory warehouses is going to flow into the market, because the enterprises have to sell it to obtain cash. That will put pressure on the copper market in the following months this year, according to the report from CNMN.