Copper prices started the week on the same trajectory they’ve been on since the start of the month, slipping to their lowest levels of the year, tracking other industrial metals as well as share markets, which have been rattled by China’s cash crunch.
- China demand, accounting for around 40% of global copper consumption, provides essential support for futures on the London Metal Exchange, and signs of a sluggish manufacturing sector in the world’s biggest buyer have contributed to a more than 16% price drop in the benchmark three-month contract since the start of 2013.
China’s woes are compounding nervousness in the market, as investors anticipate the U.S. Federal Reserve will start to wind down its bond-buying program, which has buttressed commodity prices over the past few years.
Copper’s slide has gathered pace over the past few days, with prices approaching October 2011 lows, as investors fret about the impact of China’s cash squeeze on copper usage in applications including cars and smartphones.
Three-month copper changed hands as low as $6,640.50 a metric ton Monday, down 2.6% since Friday and 9.1% so far this month.
Monday’s pullback came after commentary from state-run Xinhua indicating Beijing wouldn’t soon take action to ease tight liquidity in the world’s second-biggest economy.
“The outlook for Chinese demand in the short term is negative,” Phillip Futures Investment Analyst Joyce Liu said, adding that tight liquidity will mean higher costs for companies importing copper into China.
Imports this year have been sharply lower than last year, as China works off high domestic stock levels. China’s refined copper imports in May fell 23% compared with a year earlier, according to customs data released last week.
With little indication of how long the tightness in China will last, UOB KayHian senior analyst Helen Lau recommended to investors Monday that they keep their copper holdings relatively low in anticipation of further price weakness.
Data showing a high level of short positions–bets that the metal’s price will continue to fall–by speculative investors underscores the cautious mood in the copper market, according to Australia & New Zealand Bank.
Short positions rose to their highest level since April in the week through June 18, U.S. Commodity Futures Trading Commission data showed Friday.