Copper price in free fall: why it is falling and the “China effect”

By Maolis Castro

Copper is losing the gains accumulated during the beginning of this year.

Weak data from China’s economy is sinking the price of the commodity.

The three-month benchmark copper fell 2.6% to US$7,890.5 a tonne on the London Metal Exchange (LME), dropping below US$8,000 a tonne for the first time since the end of November.

The slump is causing concern among large producers such as Chile since copper is one of the country’s greatest sources of wealth.

The drop in its price pushed the Chilean peso to depreciate 1.44% between last Thursday and yesterday.

Copper is considered a thermometer of the world economy due to its use in various industries, especially in manufacturing, so its demand allows to have an estimate of the level of activity in the economy, said Francisco Donoso, mining market analyst at the Chilean Copper Commission (Cochilco) to Bloomberg Line.

CHINA’S SLOW RECOVERY SINKS COPPER

Much of what happens in the world’s major economies is reflected in the price of commodities.

China is the largest consumer of copper, so it has a decisive influence on its prices and the copper industry’s projections.

“The price of copper has been falling because of doubts about China’s recovery,” says Juan Carlos Guajardo, executive director of Plusmining.

The most recent economic data showed a disappointing result and, although not “bad”, it was below what would have sustained price momentum, says Guajardo.

“Domestic consumption data were the most disappointing, followed by those related to the housing market,” he adds.

According to Donoso, the “excessive optimism” regarding the demand for metals generated by the lifting of the zero Covid policy in China strongly boosted the value of copper from November 2022 to January of this year.

But currently, “its price has been negatively affected by weak manufacturing and real estate figures in China, as well as tensions in the banking system in the United States and Europe,” he said.

A POSITIVE SIGNAL

In addition to the slow reopening of the Asian giant to drive a sustained rebound in copper, Bank of America (BofA) also points to the weakness in Europe, and the United States is not helping either.

In a report released this week, the investment bank notes that buying weakened at the end of the first quarter and in the following months.

As a positive sign, the report indicates that European copper demand is growing, in contrast to previous expectations of a slowdown.

BofA’s projection for the fourth quarter of 2023 stands at US$10,000 per tonne and US$4.54 per pound.

Meanwhile, Cochilco estimates an average price of US$3.9 per pound of copper this year.

With information from Bloomberg

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