China slowdown set to hit copper prices

What's Down: Copper is forecast to reach $7,000 a tonne, from $9,000 currently, on weaker demand from China, Capital Economics says.

Copper futures for September traded on the London Stock Exchange are down 9.9 per cent to $9,180 per tonne. Reuters

Copper futures have already declined almost 10 per cent since the beginning of this year, but the price may fall further as economic data showChina's economy is slowing.

The country's imports of many commodities, including copper, have declined significantly this year. Chinese imports of refined copper were down 25 per cent from January to last month, compared with the same period last year. "We see a pullback in China and it will continue," said Ivan Glasenberg, the chief executive of Glencore, the world's largest commodities trader in which Aabar Investments has a US$1 billion stake, summing up investor sentiment in a company filing in the second quarter.

Mr Glasenberg's comments have triggered a lively debate over whether the decline is linked to speculation or if China is drawing down its inventories.

Copper futures for September traded on the London Stock Exchange are down 9.9 per cent to $9,180 per tonne, but analysts say that number may decline to as little as $7,500 per tonne.

"There is plenty of evidence that the stocks being held outside the reporting system, by consumers, producers and on behalf of financial institutions, are now very large," said Julian Jessop, the chief international economist at Capital Economics in London.

"By definition we do not know exactly how large these unreported stocks might be … but these stocks, and the changes in them, are likely to dwarf those in the data published by the exchanges."

Estimates based on the official data on production, imports and consumption suggest unreported stocks of copper might amount to several million tonnes in China alone, compared to the less than 100,000 tonnes recorded on the Shanghai exchange, Mr Jessop said.

Evidence shows demand for industrial metals for manufacturing has weakened and that trend is likely to remain for some time.

HSBC's flash estimate of the manufacturing purchasing manager's index for June showed a continued slowdown in China's economy, down 51.6 in May to 50.1. The last time the PMI index was this low, in July last year, copper prices were nearer $7,000 a tonne.