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China’s copper market is struggling with high inventories after a disappointing first quarter for the country’s biggest copper consumers. Tight credit conditions and a downturn in the construction and consumer goods markets have hit demand for the red metal, according to sector analysts. China’s leading copper fabricators and home appliance manufacturers have fared better than their smaller rivals in these tough market conditions. All market participants are now counting on the government to boost demand by relaxing bank lending rules or implementing some other kind of stimulus.
In the first quarter of 2011 LME copper increased 11 percent, but on daily basis it was a tight range between $8,250-8,650. In March it was more steadier than the first two months of this year.
Copper fell further below $8,000 a tonne to hit fresh three-month lows today, pressured by growing concern about slower demand from top consumer China, with Shanghai prices sliding more than 2 percent. A stronger dollar also weighed on the metal, as rising Spanish bond yields that revived worries over the debt-plagued euro zone, dragged down the euro to one-month lows.
Three-month copper on the London Metal Exchange fell as low as $7,885.25 a tonne, a level not seen since Jan. 13. By 0720 GMT, it was down 1.2 percent at $7,893, adding to a slide of 2.8 percent on Friday, when the Chinese data was released.
The data, which showed the Chinese economy growing an annual 8.1 percent in the first quarter, its weakest pace in nearly three years, fuelled a rash of selling, said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm. "We have broken through some pretty heavy support levels in copper. When this happens, you´ll see some funds selling," Barratt said.
"LME copper´s fall on Friday triggered a lot of stop-losses, so Shanghai copper´s reaction today is within expectation. Sentiment has been dampened by a slew of worrying Chinese data, while the fall of the yuan today after the widening of its trading band against the dollar didn´t cheer up investors here either," said a Shanghai trader.
Soaring bond yields in Spain added to the gloom. Spain´s banks increased their reliance on cheap loans from the European Central Bank in March, borrowing almost double what they did in February. The dollar rose to its highest in a month versus the euro as Spain´s soaring bond yields rekindled worries about the fragile state of the euro zone´s economy, sending Asian shares lower too. Spain´s government bond yields rose and the cost of insuring its debt hit an all-time high on Friday, as record borrowing by its banks from the European Central Bank highlighted fears about the country´s finances before it tests market appetite for its debt on Thursday.
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