Copper prices have dipped despite hopes of rebounding demand in China, as its economy recovers from the pandemic with stocks in the London Metal Exchange rising again.
Prices are down 1.82 per cent heading into trading next week, dropping to $8,194 per tonne – a monthly low – with the world’s oldest metal exchange reporting a doubling of copper stocks since July.
The institute’s warehouses are now home to 162,900 tonnes, according to the latest data after inventories were bolstered at sites in Hamburg, Rotterdam and New Orleans – with 50 per cent hikes posted in August and now September.
Ewa Manthey, commodities strategist at ING, argues this a clear signal of weakening demand, but she also noted that stocks are still low by historical standards.
This meant if demand rebounds, a price rally comparable to gains made earlier this year after China lifted pandemic restrictions could be possible.
She said: “We believe low inventories fuel the possibility for spot prices to rise rapidly if consumption picks up sooner than expected. Meanwhile, loose nearby spreads indicate an ample supply of available material.”
With copper essential for renewable projects, electric vehicles and infrastructure, such an upturn was still possible – and expectations of a rebound in China’s economy over the second half of this year from Opec and the International Energy Agency (IEA).
However. Mathey noted that worries around China’s real estate sector are continuing to escalate after Moody’s Investors Service put two of the country’s strongest property developers – China Jinmao Holdings Group and China Vanke – on review for possible downgrades.
China’s new home prices fell for a third month in August and at a slightly faster pace, according to the latest government data – sliding 0.29 per cent last month from July, when they fell 0.23 per cent.
This meant further government intervention could be needed – targeted specifically at commodities – on top of the previous stimulus measures last month such as slashed down-payment requirements for home buyers and allowing lenders to lower rates on existing mortgages.
“China’s recovery is still uncertain, with anything related to real estate continuing to struggle. For copper, risks remain to the downside heading into the year’s end on China’s uncertain outlook for the property sector. We believe commodity-intensive stimulus is needed to support short to medium-term demand growth,” she said.
Another factor influencing prices is the sustained hawkish response to inflation from central banks, with the US Federal Reserve hinting policies will remain restrictive, pushing the dollar to a six-month high last week.
Any further interest rate hikes could add more headwinds during a time of already weakening demand for copper, argues Barbara Lambrehct, commodity analyst at Commerzbank.
She said: “The firm US dollar is one factor weighing on its price, especially as it is reflecting the view that the Fed will probably keep its key rate high for some time yet. In addition, copper stocks are continuing to rise.
Commerzbank is still optimistic about the copper price in the medium term, as it is “one of the so-called critical metals that will play an important role on the path to climate neutrality”.
Looking ahead, the IEA is hosting a summit next week – focusing on how to ensure sufficient supplies and investment to meet net zero goals, which could boost sentiment towards the red metal.