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Copper: China’s Economy Continues to be the Headline Act

By Jim Williams

Headline Act: China’s Economy
Subplot: The Global Economy: Russia, Oil Prices, the UK, Germany…

  • Russia’s economy could shrink almost 4% this year
  • Last month’s inflation rate in the UK was negative again
  • Iran and oil prices
  • Germany’s economic morale ran out of gas and fell to a one-year low mainly due to the Volkswagen exhaust news

The global markets could be crashing, but news out of China would still make the headlines.

Copper prices fell on Tuesday after weaker-than-expected Chinese import data for September reversed a recent price rebound from multiyear lows. Government data showed China’s overall imports fell 17.7% in yuan terms over the month, compared with a 14.3% decrease in August. Dollar-denominated imports suffered as well, tumbling 20.4% year over year last month while exports out of China also dropped 1.1%.

“We are looking at weaker-than-expected imports in China,” said Daniel Ang, an analyst with Phillip Futures. “Lower imports would suggest that demand for commodities is still weak.”

“It’s as simple as they’re consuming less, and it stokes more fears of the Chinese slowdown,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.

“We do not think we are going to see this hard landing in China but we are expecting a structural slowdown in growth rates,” Carsten Menke, analyst at Julius Baer, told Reuters. “The metals market has to adjust to this new normal of slowing Chinese demand growth.”

Helen Lau, an analyst at Argonaut Securities, blames a weaker dollar and mining companies cutting back supply. “The big concern is the overall import data,” says Lau. “Everybody is looking at that as a sign of domestic demand.”

The poor economic data out of China and news of more mining companies following Glencore’s example and shutting down mines doesn’t scare one key player.

“Am I worried too much about China? No I’m not,” says Jean-Sebastian Jacques, head of copper and coal at Anglo-Australian mining group Rio Tinto. Jacques predicts copper prices are unlikely to recover in the near term because hedge funds were using the commodity as a way to place bearish bets on China. Prices would also be volatile, he adds, “When the supply balance changes, that’s when the market will move back to being traded on fundamentals and that’s when the price will be in the right place.”

Jacques predicts that could happen next year and into 2017.

You can read more about Rio Tinto’s plan in the Financial Times article by clicking here.

Meanwhile, Goldman Sachs is maintaining its bearish take on the red metal. Goldman continues to expect that copper prices will fall to $4,800 a ton by year-end, down from current levels of $5,344 on the London Metal Exchange. “Of particular importance to copper has been weakness in China,” the group noted. “The ongoing weakness in demand has recently led to some major supply curtailments.”

We will keep an eye on copper and report what we find as it happens.

 

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