China Copper Demand Hits Zero, Rally Faces $10K Challenge

Key Takeaway

• Chinese copper demand indicator hits zero, signaling a mismatch between global prices and China's buying willingness despite LME copper rallying to near $10,000/ton.
• Rising inventories and exports in China reflect weak downstream demand, challenging the bullish outlook on copper driven by global recovery bets.
• Copper prices rebound amid US data influencing Federal Reserve rate cut expectations, yet stubborn inflation suggests strong commodity demand.

Copper Rally Meets Resistance

Copper's ascent towards the $10,000 per ton mark on the London Metal Exchange has been a highlight of the year, showcasing a nearly 15% increase driven by expectations of a global manufacturing recovery and the metal's critical role in new-energy applications. However, this rally is now facing skepticism, particularly from China, the world's largest copper consumer. The reluctance of Chinese fabricators to engage with these elevated prices has been evident since March, with significant concerns about passing on costs to consumers. This resistance is underscored by the Yangshan copper premium's unprecedented drop to zero, signaling a disconnect between global prices and the willingness of the biggest market to pay these rates.

Inventory Buildup and Export Shifts

In China, the situation is further complicated by rising inventories and spot prices trading at a discount to futures, indicating an oversupply within the domestic market. This has led to a notable shift, with smelters beginning to export refined copper to tighter overseas markets. The swelling stockpiles and the export pivot reflect the challenges faced by the domestic market in offloading the metal amidst weak demand from fabricators. These fabricators, crucial for turning refined copper into specialized products, have been holding back on purchases, awaiting a correction in prices to alleviate the pressure on their operations.

Global Sentiment vs. Local Demand

Despite the headwinds in China, copper's global outlook remains somewhat optimistic, buoyed by improvements in global manufacturing and its indispensable role in the energy transition. The metal's price resilience, even in the face of a potential pullback, is supported by its fundamental role in electrification and renewable energy projects. However, the market's trajectory seems contingent on the ability of processors to transfer rising costs to consumers, amidst operational and cash flow challenges. This delicate balance between global optimism and local demand realities presents a complex picture for copper's immediate future.

Street Views

• Wang Wei, Shanghai Wooray Metals Group Co. (Neutral on copper demand in China):

  "Customers of one of China’s biggest copper traders have been reluctant to buy the metal since March because of weak downstream demand. Fabricators — firms that buy copper and make products like wires or tubes — needed lower prices."