**Abstract**
Over the past month, copper prices have been on an upward trend driven by signs of economic recovery in China. However, this recent rally has started to lose steam, and prices have begun to decline. There are growing concerns that Chinese manufacturing firms, the world’s largest consumers of copper, are reducing their demand. Copper prices reached a peak in the first half of August, but since then, gains have stalled, and the price has dropped by 2.6% from its monthly high.
Copper has long been considered a key indicator of China’s economic health, given its widespread use in industries ranging from construction to automotive. The recent drop in copper prices may signal a slowdown in China’s economic growth, even though other data points suggest some improvement in overall economic activity.
One of the early signs of weakening demand is the rise in copper stocks at the Shanghai warehouse, which have climbed to around 400,000 tons—up from over 1 million tons earlier this year. A warehouse manager noted that manufacturers have slowed their copper usage after a large purchase in previous months, leading to a buildup in inventory. The manager, who did not want to be named due to company policy, confirmed that this trend reflects reduced demand.
Meanwhile, copper stock levels in London have also increased, with the London Metal Exchange reporting rising inventories over the past three days. Another negative sign is the decline in China’s copper premium, which has fallen from $230 per tonne in early August to $168 per tonne. Analysts believe this is a poor omen for future copper prices. On Tuesday, the benchmark 3-month copper futures price remained relatively flat at $7,228.25 per tonne.
A purchasing manager at a power cable manufacturer in Zhejiang expressed cautious optimism about the future of copper prices. His company supplies China State Grid Corp., and he expects demand to remain stable through the end of the year following a rebound in the first half. The power cable industry accounts for nearly half of China’s total copper consumption.
He mentioned that orders have been limited since July, as many urban infrastructure projects have already been completed. Most of the orders were fulfilled during the first half of the year. Despite this, power grid investment in the first half of the year rose by 19% year-on-year, reaching RMB 265 billion (about USD 21.7 billion), far exceeding the 4% target set by the State Grid.
Yang Changhua, chief analyst at Beijing Antaike, a state-owned metal information provider, noted that the growth in the power sector this year has been modest. He added that China’s copper demand is unlikely to see any significant surprises this year.
Despite improved economic data, major investment banks like JPMorgan, Deutsche Bank, and Credit Suisse have raised their growth forecasts for China this year. However, JPMorgan remains cautious, pointing out ongoing challenges such as debt levels, inflation, and a moderate short-term economic recovery.
Yang also emphasized that even if the government introduces new support measures or the economy shows signs of stabilization, the impact on the copper market will be delayed. Macroeconomic policies often take time to affect micro-level sectors.
Barclays recently warned that increasing copper supply could lead to oversupply, worsening the market situation. The bank predicts a decline in copper prices during the fourth quarter. It estimates that global copper supply will reach 418,000 tons in the second half of the year, with a supply deficit of 307,000 tons in the first half.
In a recent report, Barclays said that while copper prices may rise further in the near term, it favors selling on rallies in anticipation of a decline in late 2013.
UOB KayHian’s senior analyst Helen Lau has lowered her average copper price forecast for this year from $7,360 per ton to $7,304, citing weak signs of recovery in Chinese demand, potential oversupply, and high global copper stock levels. She also revised her 2014 forecast downward.
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