WSJ reporetd that copper premiums are falling in China, underscoring weaker demand in the world’s second largest economy for the metal used in products ranging from laptops to refrigerators.
Traders and analysts said that premiums the fee buyers pay suppliers in addition to the price have dropped by as much as 35% since the start of the year, from around USD 200 per tonne in the Shanghai spot market to USD 130 per tonne last week.
Because of its many uses, copper prices are sensitive to shifting economic outlooks. They have fallen by 13% since the start of the year, on Wednesday hitting USD 6,376.25 per tonne the lowest since July 2010 as data pointed to slowing growth in China. The price on the London Metal Exchange on Friday slipped to USD 6,403.75 per tonne down 0.2%.
Official data showed that China’s economy slowed sharply during the first two months of the year including in industrial and retail activity, property sales and construction starts. Some results were the weakest since the global financial crisis of 2009.
Ms Helen Lau a senior analyst with UOB Kay Hian said that “In a further indication of weak demand, copper fabricators were operating at 55.5% of capacity in February, compared with 57% during the same period last year. The average capacity utilization of Chinese fabricators is 70% to 75%.”
Amid these weak fundamentals, last week’s first-ever corporate bond default in China has heightened concerns about credit conditions in the country, and traders fear that substantial quantities of copper which is often used as collateral for loans in the nation’s shadow banking system, could start moving onto the market as borrowers need to raise cash.
Barclays estimated that copper stockpiles in Shanghai bonded warehouses rose by 50,000 tonnes to 700,000 tonnes in February with reports of higher stocks in Qingdao and Guangzhou bonded areas. With financing driven imports flooding the Chinese market, inventories are still climbing after the Lunar New Year.
