Copper conundrum: price plummets despite strong Chinese demand
Metal moved in tandem with steel for most of this year but now their paths diverge
Henry Sanderson
Concerns about the US-China trade war have hit the price of copper this year — and yet a key indicator of the metal’s demand remains healthy.
The commodity, often called Dr Copper for its ability to forecast global economic growth, has fallen 13 per cent to trade at $6,262 a tonne.
Despite the price plummeting, analysts say physical demand for copper in China, the world’s largest consumer, is strong. The price to buy copper in China, as measured by the local premium, has risen over the past month.
But in China the price of steel, which has moved in tandem with copper for most of this year, has continued to rise. Both metals are used in construction.
“We’ve never seen this degree of divergence sustained for so long,” said Ian Roper, an analyst at SMM, a Chinese metals consultancy in Singapore. “Underlying fundamentals today are quite good.”
That is a sentiment shared by the largest copper miners such as Freeport-McMoRan and Antofagasta, which say demand for copper from their customers remains strong.
The sell-off in copper prices has instead been driven by traders and speculators more concerned about the global economic impact of a US-Sino trade tussle.
“Escalating trade rhetoric from the US administration was sufficient to put an end to copper’s party,” according to analysts at Wood Mackenzie.
Going forward the question will be how much the trade dispute — and the rhetoric — starts to eat into real copper demand in China.
Analysts at BMO Capital Markets expect growth in copper demand to fall to 2.6 per cent in 2019 from an expected 4.2 per cent this year. Traders may be right to be cautious.
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