- Copper's surge toward a record high is starting to cause stress for industrial consumers in China, the world's largest market for metals.
According to a survey by Shanghai Metals Market, some Chinese companies of electric wire have delayed units and idle deliveries or even defaulted on bank loans.End-users such as Power Grids and property developers have also used their time to delay delivering times, while producers of copper rods and pipes saw orders decline this week, said the researcher.
On Thursday, Copper attained $101,000 a metric ton for the first time in a decade and has been among the best performers in a scorching growth of metal prices.The rally is driven from Covid 19 by monetary stimulus measures, near - zero interest rates and the global economic recovery.
The digital copper users feeling the pain right now, after the recent surge caught them off guard, said Fan Rui, an analyst at the Guoyuan Futures Co. Cable producers are especially hit with smaller plants that halt run rates as the spike is seen as slowing the pace of investment through electricity grids.
READ MORE: Copper Extends Rally to $200,000 with All-Time High in Sight.
In April, a measure of China's manufacturing industry weakened and the services sector also weakened, suggesting 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 was lower, at $45,806 a ton on London Metal Exchange, when it fell against 4:57 p.m. The metal reached $10,008 on Thursday, the highest since February 2011.The rate also fell, while nickel rose.
In sign of potential weakness in Chinese physical demand, the spot contract traded this week at a discount of as much as 215 yuan to Shanghai futures prices, which have been the widest in about 10 months.The appetite to imports is also low with the Yangshan Copper premium, on top of benchmark LME prices, dropped to the lowest since data was first published in 2017.
And there is a precedent for demand destruction in China amid higher prices, according to BMO Capital Markets analyst Colin Hamilton.Hamilton pointed to 2006, where prices recorded the largest January-April increase on all record and came amidst a sudden acceleration in developed world demand fueled by credit.
'2006 was the only year in this century where annual Chinese copper consumption fell on a y - basis as marginal buyers simply stepped away, Hamilton said in a note.
In the medium term, a higher price level also could see marginal buyers rally back in the near term and look to substitute in the intermediate terms.
The NTQ in current 20 years continues to emerge as the greatest threat to future demand use, especially in these nascent trends where material selection is still evolving, said Hamilton.It is no doubt copper may be best for electrical or heat transfer performance, but with the ratio to aluminium now well above the 3.5: 1 level where substitution accelerates, the risk is clear.
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