Copper’s surge toward a record high is starting to cause stress for industrial consumers in China, the world’s largest market for the metal.
Some Chinese manufacturers of electric wire have idled units and delayed deliveries or even defaulted on bank loans, according to a survey by the Shanghai Metals Market.
End-users, such as power grids and property developers, have also been pushing back delivery times, while producers of copper rods and pipes saw orders slump this week, the researcher said.
Copper on Thursday topped US$10,000 a tonne for the first time in a decade and has been among the best performers in a scorching surge in metals prices. The rally is being fueled by stimulus measures, near-zero interest rates and a global economic recovery from COVID-19.
“Domestic copper users are feeling the pain right now after the recent surge caught them off guard,” Guoyuan Futures Co (國元期貨公司) analyst Fan Rui said. “Electric wire producers are being hit the most, with smaller plants keeping run rates low as the spike is seen slowing the pace of investment by power grids.”
A gauge of China’s manufacturing industry slipped last month and the services sector also weakened, suggesting that the economy is still recovering, but at a slower pace.
To be sure, analysts at banks, including Goldman Sachs Group Inc, are predicting further gains for the metal as the global economy picks up pace.
Copper fell 0.6 percent to settle at US$9,825 a tonne on the London Metal Exchange (LME).
The metal reached US$10,008 on Thursday, the highest since February 2011.
Aluminum also declined, while nickel rose.
In sign of potential weakness in Chinese physical demand, the spot contract traded at a discount of as much as 215 yuan (US$33) a tonne to Shanghai futures’ prices this week, the widest in about 10 months.
The appetite for imports is also low, with the Yangshan copper premium, paid on top of benchmark LME prices, slumped to the lowest since data were first published in 2017.
There is a precedent for demand destruction in China amid higher prices, BMO Capital Markets analyst Colin Hamilton said.
“2006 was the only year this century where annual Chinese copper consumption fell on a y/y [year-on-year] basis, as marginal buyers simply stepped away,” Hamilton said in a note.
On Friday, gold for June delivery fell US$0.60 to US$1,767.70 an ounce, down 0.6 percent for the week.
Silver for July delivery on Friday fell US$0.22 to US$25.87 an ounce, down 0.8 percent weekly.
Additional reporting by AP
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