**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 indications that Chinese manufacturing firms—by far the largest global buyers of copper—are reducing their demand. Copper prices saw a significant increase in the first half of August, but the momentum has since stalled, with current prices down 2.6% from their monthly peak.
Copper has long been considered a key indicator of China’s economic health, given its widespread use in everything from power cables to vehicles. The recent price drop could signal a more cautious outlook for the Chinese economy, despite other data pointing to stronger growth.
One early warning sign is the rise in copper stock levels at the Shanghai warehouse, which have remained steady around 400,000 tons, up from over 1 million tons earlier this year. A warehouse manager noted that manufacturers have slowed their usage of copper after a period of heavy buying, leading to a buildup in inventory. The manager declined to be named due to restrictions on sharing information with the media.
Meanwhile, copper stock levels in London have also risen, according to the London Metal Exchange, with inventories increasing for three consecutive days.
Another negative sign is the decline in China’s copper premium. Analysts suggest this is not a positive development for future copper prices. According to the Shanghai Metal Market, the premium for Chinese copper has dropped from $230 per tonne in early August to $168. On Tuesday, the benchmark three-month copper futures price remained largely unchanged at $7,228.25 per tonne.
A purchasing manager at a power cable manufacturer in Zhejiang expressed limited optimism about the future of copper prices. His company supplies China State Grid Corp., and he expects stable demand for power cables through the end of the year, following a rebound in the first half. The power cable industry accounts for about half of China’s total copper consumption.
He mentioned that orders have been slow since July, as many urban infrastructure projects were completed earlier in the year, with most orders already fulfilled in the first half of the year.
In the first half of the year, power grid investment increased 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, said this indicates only modest growth in the power sector this year.
Yang added that China’s copper demand is unlikely to see any major surprises this year. Despite recent improvements in manufacturing data, leading investment banks like JPMorgan, Deutsche Bank, and Credit Suisse have raised their growth forecasts for China. However, JPMorgan remains cautious, highlighting ongoing challenges such as high debt levels, inflation, and a moderate, short-term economic recovery.
Yang also pointed out that even if the government introduces new support measures or the economy appears to stabilize, the impact on the copper industry would likely be delayed. Macroeconomic policies often take time to influence the micro-level market.
Barclays recently warned that rising copper supply could lead to oversupply, worsening the market situation. The bank expects copper prices to fall in the fourth quarter, projecting a supply deficit of 307,000 tons in the first half of the year and a global supply of 418,000 tons in the second half.
In a recent report, Barclays noted that while copper prices may rise further in the near term, it prefers to sell during rallies, anticipating a potential decline in late 2013.
UOB KayHian’s senior analyst Helen Lau has lowered her average copper price forecast for this year from $7,360 to $7,304 per ton, citing weak signs of a recovery in Chinese demand, potential oversupply, and high global copper stock levels. She also revised her 2014 forecast downward.
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