By Jim Williams
A holiday-abbreviated week in the United States doesn’t stop global movement on the price of copper.
Trading activity in London took a dip on the negative side as a result of the US financial markets celebrating Labor Day. LME three-month copper tested a low of $6,920 and closed down $6,943 on Monday.
“The tightness underpinning some of the metals, notably aluminum and copper, seems set to last until the September date so the complex might remain supported until then. We would, however, not get too comfortable with those metals showing strength,” according to William Adams of FastMarkets.
The price of copper has been swinging wildly since hitting a near four-year low in March.
Weak economic news out of China, consumer of 45% of the globe’s copper, is the number one factor for the weakness in the price.
Manufacturing activity in the world’s second largest economy slowed sharply in August. A reading of the country’s services industry dropped to nine-year lows in July while bank lending is at financial crisis levels.
Probably most worrying is weakness in China’s property sector. The latest monthly data shows home sales declining by almost a fifth, the sharpest downturn since December 2008. At the same time unsold inventories of real estate in China have risen by more than 25% this year. Construction accounts for 60% of copper demand.
Some economists are predicting a property bust after years of overbuilding in China that will make the US subprime mortgage crisis seem puny.
In a report posted Tuesday morning, Metal.com says 33% of Chinese copper wire and cable producers expect copper prices to fall in the near term. The respondents argued that the People’s Bank of China’s targeted interest rate cut is launched to support agriculture and unlikely to benefit industrial enterprises and large investment projects.
Outside China the demand picture isn’t that bright either. Accelerating growth in the US, the world’s second largest consumer of the metal has been offset by continuing soft demand from two other major importing countries Germany and Japan.
While demand factors are putting the copper price under pressure, supply is adding to concerns for the rest of this year and 2015.
While still up sharply year on year China’s imports of refined copper fell to 340,000 ton in July, the third straight month of declines. For the rest of the year imports are expected to decline sharply as some 450,000 tons of additional refined output in China come on stream.
One positive factor for the copper market this year is the fall in global inventories.
Global refined warehouse stocks are at their lowest level since early 2012, while exchange inventory is at the lowest level since 2008.
However, since the Qingdao scandal where several companies pledged the same copper and iron ore held at the port as collateral for loans to different banks, the opportunity of vast quantities of “off-balance sheet” copper hitting the market has muted the impact the reduction in value would otherwise have had.
A Different Look at China: Is China’s economy like Clouseau’s Inflatable Parrot?
This tongue-in-cheek article takes a comical look at China’s ‘inflated’ economic solutions
Three-month Copper Price Chart