In pre-open New York trade on Wednesday September copper slid more than 1% to a low of $3.1660 a pound after data out of China showed unexpected weakness and new supply come onto the market.
Growth in China’s services sector slowed sharply in July to its lowest level in nearly nine years according to an HSBC survey of purchasing managers.
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented the weakness likely reflects the impact of the ongoing property slowdown in many cities and that the date “points to the need of continued policy support to offset the drag from the property correction.”
The numbers are in stark contrast to the improved activity registered by the country’s manufacturing sector.
The price of the red metal was also hurt by the prospect of at least 756,000 tonnes of concentrate (holding roughly 225,000 tonnes of metal) coming onto the market as Freeport McMoRan (NYSE:FCX) restarts exporting copper concentrate from Indonesia after a six-month hiatus.
Copper has been in recovery mode since hitting a near four-year low mid-March of $2.92 a pound as global stockpiles continued to decline.
Currently, copper inventories at warehouse operated by the London Metals Exchange, Shanghai Metals Exchange and on the Comex market in New York stand at roughly 275,000 tonnes, down almost by half year to date.
But tightness in China’s domestic supply are easing evidenced by a fall in premiums for copper in Shanghai warehouses to $85 a tonne, down from $105 a month ago.
China which consumes more than 40% of the world’s copper imports tumbled 8% in June to 350,000 tonnes compared to the previous month.
The fall is blamed on Beijing’s crackdown on the practice of using warehoused inventories as collateral for trade finance after fraudulent transactions were uncovered at the major port of Qingdao.
Reuters quotes a Commonwealth Bank of Australia research note saying the slump in imports may indicate “the growing scrutiny of China’s copper financing trade may weaken China’s apparent copper demand and keep copper prices under pressure.”
However, year to date China is still importing refined copper at a record setting pace – up a whopping 26% over 2013 to 2.52 million tonnes.
The copper price is highly correlated with economic growth thanks to the widespread use of the metal in the construction, transport and power industries, and the robustness of the red metal is prompting industry to switch to much cheaper aluminum for some applications.