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Copper Prices Trounced By Falling Demand

By Stuart Burns via

At least that's what the Financial Times reported Goldman Sachs saying this week with regard to the price of copper. The bank also revised its forecast for the average copper price to $8,698 per metric ton, down from $9,750.

According to a NASDAQ post, copper prices touched a six-month low this week as speculators increased short positions. The move was in response to worries about recessionary trends in Europe and weakness in the Chinese manufacturing sector. Analysts do not currently expect Chinese growth to fall into negative territory. However, most of the economy's growth is confined to the services sector, not manufacturing. The latter continues to be held back by slow growth in the rest of the world and insufficient infrastructure investment, which many expected to be part of the COVID recovery bounce back this year. A firm U.S. dollar isn't helping the metals sector either, with all metals either trending sideways or down.

Price of Copper Impacted by Falling Demand

While we are not advocates of "inventory tells us all we need to know about demand," it is unsurprising that LME inventory levels continue to rise rapidly as European consumption slumps. Inflows of metal continue to be aided by a "super contango" of low cash prices compared to three months on the LME. According to Reuters, the delta is currently around $66 per metric ton, the largest since 2006. And despite falling three-month prices, the difference between the two represents an even faster fall in spot prices.

In China, inventory on the Shanghai Futures Exchange fell this quarter after rising strongly in the first quarter of the year. However, SHFE copper prices continue to slide broadly in line with the LME. NASDAQ quoted Ole Hansen, head of commodity strategy at Saxo Bank, as saying the next LME support level is $7,850. With the price of copper struggling to rise above the 200-day moving average of $8,370, it is a key indicator for sellers to go short.

Copper's current malaise appears to be a simple case of supply and demand. Supply is satisfactory following the calming of unrest in Peru and Chile and the resolution of tax disputes at the Tenke Fungurume mine in the DRC. However, demand remains weak in Europe and is not as strong as many hoped in China. This leaves many who expected a strong recovery in demand feeling frustrated.


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