The flash reading for China compiled by HSBC and Markit fell to a six month low of 49.6 in January versus 50.5 in December, fueling worries about demand in the world’s top metals consumer. Consequently, copper fell to its lowest in a month on Friday and was on track for its biggest weekly fall since mid-November.
Copper futures for delivery in March slipped 0.2 percent to $3.28 a pound at 11:04 a.m. on the Comex in New York. A close at that price would take this week’s loss to 1.9 percent, the biggest for a most-active contract since the five days ended Nov. 15. Earlier, prices touched $3.275, the lowest since Dec. 19.
China is the world’s top consumer of base metals, accounting for around 40% of global demand for copper, followed by the U.S. at about 10%. The metal is used in a wide range of industrial applications, including automobiles, power cables, and appliances, making prices sensitive to such data.
US Flash PMI released after the Chinese number also came in below expectations, with growth slowing for the first time since October as output and new orders decelerated although at the 53.7 mark is still showing overall expansion. In contrast to the poor number from the US, China, Eurozone manufacturing picked up for the fifth month in a row recording a jump to 53.9 in January compared to 52.7 the month before.
Base metals are especially sensitive to the slowdown in Chinese demand and the sensitivity is further heightened by the fact that a key factor in the Chinese slowdown, which started in mid-2013, is a scale-back in investment activity. This is particularly bad news for base metals as they rely heavily on China‘s investment demand, e.g. in activity in the construction sector. Overall, emerging markets look set to slow, highlighted by the recent emerging markets sell-off.
Investors are “concerned about whether China will maintain its growth,” said Stephen Platt, a futures strategist with Archer Financial Services. “There are still a lot of doubts about how strong their economy is. That’s going to weigh on consumer demand” for copper.
Strong growth on the supply side also does not bode well for the copper price this year as a slew of massive greenfields projects – notably Codelco’s 160,000 tonnes-plus Ministro Hales mine in Chile – and a number of expansions including at Collahuasi and BHP Billiton’s Escondida – come on stream.
For the past seven years annual supply growth has been essentially static falling to as lows as 0.4% a year in 2010 to 2011, but growth in copper mine supply in 2013 was a above 6% and the International Copper Study Group predicts and almost 8% jump this year.