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Gloomy demand outlook, rising stocks hammer copper price

Copper prices dropped on Monday, approaching close to four-month lows hit last week, with sentiment dominated by concern over Chinese demand, rising stocks and a stronger dollar.

Benchmark copper CMCU3 on the London Metal Exchange (LME) was down 1% at $8,140 a metric ton by 0958 GMT. The metal used in power and construction earlier touched $8,110, near the $8,071 hit last week for its lowest since the end of May.

Prices of industrial metals have come under pressure this year from slowing demand in China, where the property market has stalled and manufacturing has contracted.

“China has no appetite for big bang infrastructure stimulus because the stock is already so big,” said Julius Baer analyst Carsten Menke, adding that any stimulus would have to be really large to make any difference to demand.

“On property, China’s population is falling. The government knows fewer apartments will be needed in the future.”

Clues on the Chinese demand outlook will come from surveys of purchasing managers in the country’s manufacturing sector this week.

Highlighting apparent weak demand are copper inventories MCUSTX-TOTAL in LME-registered warehouses. At 163,900 tons, stocks are up more than 200% since the middle of July.

Expectations of further copper inflows into the LME system have fuelled a large discount for cash copper over the three-month contract MCU0-3, at 31-year highs around $68 a ton.

However, Julius Baer’s Menke is optimistic about copper’s long-term prospects thanks to the global push towards energy transition, which will require large amounts of copper for wiring.

“From the energy transition perspective, the outlook is positive. If copper falls to $8,000 or below, it’s a buying opportunity,” Menke said.

Overall, industrial metals came under pressure from the stronger U.S. currency which when it rises makes dollar-priced metals more expensive for holders of other currencies, potentially subduing demand.

Aluminium CMAL3 fell 1% to $2,219 a ton, zinc CMZN3 retreated 1.4% to $2,526, lead CMPB3 was down 0.9% at $2,194, tin CMSN3 ceded 0.9% to $26,000 and nickel CMNI3 lost 0.6% to $19,310.
Source: Reuters (Reporting by Pratima Desai,Editing by David Goodman)

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