Copper Faces Pressure As Chinese Stockpiles Soar, Demand Weakens: Prices Slip Below $10,000 Per Ton

Zinger Key Points
  • Chinese copper stockpiles unexpectedly soar, signaling weakening demand amid economic uncertainty and mixed manufacturing data.
  • Copper prices fall below $10,000 per ton, pressured by high inventories in China and the LME.

Copper is facing a headwind as stockpiles in China, the world’s biggest consumer of the metal, are soaring at an unexpected time. This surge is raising concerns about weakening demand despite a recent price rally.

Typically, Chinese copper inventories peak in March and then decline as factories ramp up production for the summer months. However, this year, stockpiles held in Shanghai Futures Exchange warehouses ended May well above 300,000 tons, marking a record high for that month's end.

The unusual rise in inventories coincides with a turbulent period for the Chinese economy, marked by mixed manufacturing data. The official factory gauge for May indicated contraction, while a private survey focused on smaller, export-oriented firms showed modest improvement.

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This divergence between global copper sentiment, which saw prices peak at $11,100 per ton in May, and weak Chinese demand has caused prices to slip below $10,000 per ton.

Record stockpiles at the London Metal Exchange (LME), reflecting ample supply in the market, add to the price pressure.

“The copper market seems much more sufficiently supplied than some traders had hoped for,” Carsten Menke, head of Next Generation Research at Julius Baer, said in a comment for Bloomberg. “Hence, a rapid turnaround of copper prices thus looks unlikely in our view, and we rather expect the market to consolidate during the summer months.”

Weakening Chinese demand is further evidenced by a drop in the Yangshan premium, which has fallen to negative territory since last month. Traditionally, buyers of imported copper pay a premium over the international price. This reversal suggests a shift in power, with Chinese buyers demanding a discount.

Meanwhile, the U.S. economy is also showing signs of a slowdown, as evidenced by the latest Job Openings and Labor Turnover Survey (JOLTS). U.S. job openings fell to 8.06 million in April, consistent with a gradual deceleration in the labor market. This data has reinforced expectations that the Federal Reserve might cut interest rates this year, influencing copper prices further.

Not all institutions agree on the matter. Investment bank Liberum forecasts a significant price drop if the Federal Reserve starts cutting interest rates. Per ThisisMoney's report, the prediction is a price range of $7,000 to $7,500 per ton, which is significantly lower than the current consensus forecast staying above $8,500. This expectation contrasts with Goldman Sachsforecasts, which see the metal at $12,000 per ton by the year’s end.

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