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Copper prices are signalling that demand may be weakening in China, the world’s largest consumer, as stocks of the metal flow out of the country to warehouses elsewhere in Asia.
The red metal, which is often seen as a gauge of global economic activity due to its ubiquitous use in wiring, has relinquished its gains for the year, falling 2 per cent. That is in contrast to other metals also heavily tied to Chinese demand such as zinc, tin and nickel, which have all staged rallies.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. The drop in price to a 10-week low on Tuesday comes after imports of the metal into China fell in July, and stocks have built up on London Metal Exchange warehouses in South Korea and Singapore.
Global stocks of copper are now at their highest levels since October 2015, according to data from broken Marex Spectron.
That is raising fears that demand in China could be weakening after a government stimulus in the first half of the year saw prices rise to a peak of $5,131 a tonne in March, giving hopes to some of the world’s largest miners. Copper traded at $4,607 a tonne Tuesday.
Most analysts do not expect the copper market to recover until 2018, when supply starts to tighten due to lack of investment in new mines. Credit ratings company S&P Global Ratings said it forecasts a price of $4,600 a tonne for this year as the market remains oversupplied, rising to $4,850 a tonne in 2017.
In the meantime, the copper market could be due for a “sharp slowdown” in the second half of the year, which could send prices even lower, according to Barclays.
The premium, or the price a trader could get for selling physical copper into the market, has been unusually weak since April, according to Dane Davis, a Barclays analyst in New York. That is providing an incentive for traders and smelters to send metal outside the country where they can earn more leaving it in a warehouse.
“Momentum is starting to stall in China and people are starting to off load the metal in other markets,” he said. “There’s strong availability of supply and demand has been tepid and started to cool off in May and June.”
There has also been a build-up of excess metal in China after it imported a record amount in the second half of 2015, according to analysts. Domestic refined production has also increased 7 per cent this year, according to Bank of America Merrill Lynch.
Investors are also betting that copper prices will fall further. Traders on the Shanghai Futures Exchange are holding a net short position of 16,684 contracts, according to exchange data, while on the Comex exchange in New York, speculators swung to a net short position in the week ended Aug. 23.
Speculators in Comex copper futures had previously built a net short position in early June, before a bounce in copper prices led to an unwinding.
“Weakening fundamentals triggered the return of a copper net-short position,” Ole Hansen, head of commodity strategy at Saxo Bank, said. “With funds having only just turned net-short again, there will be plenty of room to increase short positions
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Copper prices are signalling that demand may be weakening in China, the world’s largest consumer, as stocks of the metal flow out of the country to warehouses elsewhere in Asia.
The red metal, which is often seen as a gauge of global economic activity due to its ubiquitous use in wiring, has relinquished its gains for the year, falling 2 per cent. That is in contrast to other metals also heavily tied to Chinese demand such as zinc, tin and nickel, which have all staged rallies.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. The drop in price to a 10-week low on Tuesday comes after imports of the metal into China fell in July, and stocks have built up on London Metal Exchange warehouses in South Korea and Singapore.
Global stocks of copper are now at their highest levels since October 2015, according to data from broken Marex Spectron.
That is raising fears that demand in China could be weakening after a government stimulus in the first half of the year saw prices rise to a peak of $5,131 a tonne in March, giving hopes to some of the world’s largest miners. Copper traded at $4,607 a tonne Tuesday.
Most analysts do not expect the copper market to recover until 2018, when supply starts to tighten due to lack of investment in new mines. Credit ratings company S&P Global Ratings said it forecasts a price of $4,600 a tonne for this year as the market remains oversupplied, rising to $4,850 a tonne in 2017.
In the meantime, the copper market could be due for a “sharp slowdown” in the second half of the year, which could send prices even lower, according to Barclays.
The premium, or the price a trader could get for selling physical copper into the market, has been unusually weak since April, according to Dane Davis, a Barclays analyst in New York. That is providing an incentive for traders and smelters to send metal outside the country where they can earn more leaving it in a warehouse.
“Momentum is starting to stall in China and people are starting to off load the metal in other markets,” he said. “There’s strong availability of supply and demand has been tepid and started to cool off in May and June.”
There has also been a build-up of excess metal in China after it imported a record amount in the second half of 2015, according to analysts. Domestic refined production has also increased 7 per cent this year, according to Bank of America Merrill Lynch.
Investors are also betting that copper prices will fall further. Traders on the Shanghai Futures Exchange are holding a net short position of 16,684 contracts, according to exchange data, while on the Comex exchange in New York, speculators swung to a net short position in the week ended Aug. 23.
Speculators in Comex copper futures had previously built a net short position in early June, before a bounce in copper prices led to an unwinding.
“Weakening fundamentals triggered the return of a copper net-short position,” Ole Hansen, head of commodity strategy at Saxo Bank, said. “With funds having only just turned net-short again, there will be plenty of room to increase short positions
Read more -
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