Copper continues slide on weak China data
In trading in Shanghai, the metal has fallen 7 per cent since its high point in May.
While infrastructure investment and monetary stimulus in China is expected to increase in the second half of this year, analysts said it was likely to benefit steel and cement more than copper, which is used in wiring.
Data released this week showed new housing starts in China fell 16 per cent in May. Fixed asset investment in the economy also slowed. That could mean China missing its target of 7 per cent growth in the second quarter, according to ANZ.
“The prospect of lower growth in fixed asset investment and a clampdown on polluting heavy industry will remove significant pillars of commodity demand and prices,” Capital Economics said.
Low copper prices are putting pressure on global miners with shares of US miner Freeport-McMoRan down 15 per cent this year.
But miners such as Rio Tinto are putting their hopes in an eventual copper deficit towards the end of the decade as mine supply fails to keep up with demand.
The company’s Oyu Tolgoi mine in Mongolia is expected to ramp up to full production by 2021.
Lower copper prices could start to put pressure on higher cost mining output, according to Vivienne Lloyd, an analyst at Macquarie.
“The Chinese mining industry is struggling with prices at these levels,” she said.
But so far, the market in China seems well supplied. China’s production of refined copper rose by 8.1 per cent in May compared with the previous month, hitting the highest level this year as smelters were incentivised on the back of higher copper prices during the month.
Also weighing on expectations of copper demand is China’s approval in April of standards for the use of low-voltage aluminium cables that could mean less copper use in electricity wiring next year.
Aluminium has mostly been used for high-voltage transmission in the country.
Copper has about 65 per cent to 70 per cent market in utility power cables in China by weight, according to consultancy CRU, compared with 30 to 35 per cent for aluminium.
But substitution is not going to happen overnight, according to Ms Lloyd. “We don’t think it’s going to drown the market,” she said.