Copper prices fall on sharp fall in global demand

Copper price has reached its biggest discount to its futures counterpart in nearly two decades, in a warning sign of a sudden weakening in global demand as China’s economic recovery stalls.

Copper was $66 cheaper on Monday for settlement in two days than for buying a contract to deliver the metal in three months’ time, traders said, reflecting concerns that China’s industrial rebound was not taking place. According to the London Metal Exchange, the difference between the two prices is the largest since 2006.

The sharp fall in the spot price reflects a sharp increase in metal inventories outside China in LME warehouses, as US and European industrial activity begins to slow after a year of rapid interest rate hikes.

Known as Dr Copper for its ability to gauge the health of the global market, the metal is widely used in buildings, infrastructure and home appliances.

Natalie Scott-Grey, base metals analyst at broker StoneX, said copper prices were beginning to be driven by real-world signs of weak demand rather than larger macroeconomic factors, such as the US dollar and sentiment on China’s reopening.

“This is the first physical evidence we’re seeing that demand is being hit harder than expected in the West,” she said. “It is the pace of change that has made the difference”.

The price of copper has fallen 11 per cent in a month to nearly $8,000 a tonne, its lowest level since November, as China has not recovered as fast as expected since it eased its strict coronavirus restrictions late last year. were removed.

Positive sentiment around the reopening of Asia’s biggest economy helped major industrial metals rally more than a quarter between November and January.

“It hasn’t been this terrible for a number of years,” said Al Munro, metals strategist at Marex, a London-based broker. “The bullish outlook was based on China’s rebound, which did not materialize as we suffer from an economic slowdown in the West.”

A slowdown in West manufacturing and fading momentum for China’s recovery prompted Goldman Sachs on Sunday to revise its forecast for average copper prices this year to $8,698 a tonne from $9,750 a tonne. It added that the metal was “priced for bearish”.

High interest rates have alerted banks to hold onto a surplus supply of the metal due to expensive financing costs, contributing to a dramatic “super-contango” structure where metal prices for immediate delivery are much cheaper than future ones. . As a result, more metal is piling up in LME warehouses, which act as a market of last resort.

The US dollar, which has gained 2 per cent against a basket of six currencies since early May, also weighed down copper prices as it has become more expensive for Chinese importers.

At the same time, a reduction in copper supplies in Latin America and the resolution of a tax dispute related to the large Chinese-owned Tenke Fungurum mine in the Democratic Republic of the Congo have boosted supplies.

However, some in the market remain optimistic about the upside prospects of copper prices this year due to an expected uptick in demand due to renewable energy, electric cars and infrastructure upgrades.

Bank of America on Monday reaffirmed its forecast for copper at $10,000 a tonne by the end of the year as China ramps up spending on the grid, which heavily uses the superconductive metal.

Copper price has reached its biggest discount to its futures counterpart in nearly two decades, in a warning sign of a sudden weakening in global demand as China’s economic recovery stalls.

Copper was $66 cheaper on Monday for settlement in two days than for buying a contract to deliver the metal in three months’ time, traders said, reflecting concerns that China’s industrial rebound was not taking place. According to the London Metal Exchange, the difference between the two prices is the largest since 2006.

The sharp fall in the spot price reflects a sharp increase in metal inventories outside China in LME warehouses, as US and European industrial activity begins to slow after a year of rapid interest rate hikes.

Known as Dr Copper for its ability to gauge the health of the global market, the metal is widely used in buildings, infrastructure and home appliances.

Natalie Scott-Grey, base metals analyst at broker StoneX, said copper prices were beginning to be driven by real-world signs of weak demand rather than larger macroeconomic factors, such as the US dollar and sentiment on China’s reopening.

“This is the first physical evidence we’re seeing that demand is being hit harder than expected in the West,” she said. “It is the pace of change that has made the difference”.

The price of copper has fallen 11 per cent in a month to nearly $8,000 a tonne, its lowest level since November, as China has not recovered as fast as expected since it eased its strict coronavirus restrictions late last year. were removed.

Positive sentiment around the reopening of Asia’s biggest economy helped major industrial metals rally more than a quarter between November and January.

“It hasn’t been this terrible for a number of years,” said Al Munro, metals strategist at Marex, a London-based broker. “The bullish outlook was based on China’s rebound, which did not materialize as we suffer from an economic slowdown in the West.”

A slowdown in West manufacturing and fading momentum for China’s recovery prompted Goldman Sachs on Sunday to revise its forecast for average copper prices this year to $8,698 a tonne from $9,750 a tonne. It added that the metal was “priced for bearish”.

High interest rates have alerted banks to hold onto a surplus supply of the metal due to expensive financing costs, contributing to a dramatic “super-contango” structure where metal prices for immediate delivery are much cheaper than future ones. . As a result, more metal is piling up in LME warehouses, which act as a market of last resort.

The US dollar, which has gained 2 per cent against a basket of six currencies since early May, also weighed down copper prices as it has become more expensive for Chinese importers.

At the same time, a reduction in copper supplies in Latin America and the resolution of a tax dispute related to the large Chinese-owned Tenke Fungurum mine in the Democratic Republic of the Congo have boosted supplies.

However, some in the market remain optimistic about the upside prospects of copper prices this year due to an expected uptick in demand due to renewable energy, electric cars and infrastructure upgrades.

Bank of America on Monday reaffirmed its forecast for copper at $10,000 a tonne by the end of the year as China ramps up spending on the grid, which heavily uses the superconductive metal.