Copper Falls Most in Three Weeks as China Manufacturing Shrinks

Copper fell the most in three weeks in New York after manufacturing shrank for the first time in seven months in China, the world’s biggest user of the metal.

A Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics showed a preliminary reading today of 49.6 for May, below the level of 50 separating growth and contraction. Asian stocks slumped after the data, which may test the new government’s commitment to tolerate slower growth after Premier Li Keqiang last week signaled reluctance to add stimulus.

“Reduced demand prospects for metals, coupled with abundant capacity and a government not inclined to ‘prime the pump,’ means that China will not be coming to the rescue of the metal markets,” Edward Meir, an analyst at INTL FCStone in New York, said in a report. “Overall growth estimates for China are being reduced.”

Copper futures for delivery in July dropped 2.3 percent to settle at $3.304 a pound at 1:17 p.m. on the Comex in New York, the biggest decline since May 1.

New Chinese rules taking effect from June are likely to halt commodity-financing accords in the country, Goldman Sachs Group Inc. said in a report. An end to copper-financing transactions would be negative for prices, the bank said.

The metal advanced 6.1 percent this month through yesterday amid signs of an improving U.S. housing market and a jump in orders to remove copper from inventories.

Sales of new U.S. homes climbed in April to the second-highest level in almost five years, a government report showed today. An average single-family house contains 439 pounds of copper, according to the website of Peoria, Arizona-based Viking Minerals Inc. The metal is used in pipes and wiring.

On the London Metal Exchange, copper for delivery in three months retreated 2.3 percent to $7,300 a metric ton ($3.31 a pound).

Aluminum, lead, nickel, tin and zinc were also lower in London.