HANOI- Copper fell on Wednesday on signs of weakening demand in top consumer China and as a firmer dollar made greenback-priced metals more expensive to holders of other currencies.
The most-traded July copper contract on the Shanghai Futures Exchange slipped 0.3 percent to 73,800 yuan ($11,568.12) a ton while the three-month copper on the London Metal Exchange was almost unchanged at $10,246 a ton.
Yangshan copper premium fell to $30.50 a ton, its lowest since February 2016, indicating weakening demand for imported metal into China as high copper prices hurt profit of some downstream users.
The dollar clung to small gains from overnight as a pick up in US manufacturing kept bets alive for a quicker normalization of Federal Reserve policy.
Meanwhile, the threat of supply disruption from Chile eased as BHP said operations at the world’s largest copper mine Escondida and at the smaller Spence mine in the country were normal on Tuesday despite a labor strike.
Chinese speculators remain unenthused by copper and that has nothing to do with the government’s increasingly strident warnings about commodity price inflation.
Volumes and market open interest on the Shanghai Futures Exchange copper contract peaked in February and April respectively. Trading activity remains subdued. Open interest has rebuilt a little over recent days but at 339,082 contracts is a long way off its April peak of 394,614 contracts.
China’s army of retail traders evidently prefer the roller coaster that is the iron ore and steel complex right now. The ferrous market has a low price entry point relative to copper and, from a Chinese perspective, a stronger short-term bull narrative of domestic production constraint. It is also, not coincidentally, where the Chinese government is making the loudest noises about speculative excess.
Compare and contrast with the local copper market, where the Yangshan premium, a closely-watched indicator of import demand, has slumped to a multi-year low of $32 per ton, according to Shanghai Metal Market.
That’s not surprising given the strength of imports since the start of China’s COVID-19 recovery early last year. Net imports of refined copper rose by 1.2 million tons to 4.4 million in 2020 and remained robust through the first quarter of 2021.
However, the country is showing every sign of entering a de-stocking phase which will coincide with an expected broader slowdown as China’s policy-makers wind in the stimulus cash.
Chinese investors don’t seem enthused by the short-term headwinds facing the local copper market and Western fund managers seem to be expressing the same caution. — Reuters
