SHANGHAI (Reuters) - Even with copper prices reeling from their biggest rout in six years, there were few signs at China’s biggest copper conference this week of manufacturers being tempted back to buy more of the metal.
At the Shanghai meeting, big copper users, ranging from wire manufacturers to plumbing material makers, in the world’s top consumer told a similar story: there was little point in lifting buying due to sluggish order books.
The price of the metal, often regarded as a benchmark of global industrial demand, took a near 5 percent dive this week and is set for its worst seven days since mid-January, with the drop compounded by heavy fund selling and spurring debate about whether prices are near a bottom or on the brink of another leg down.
For many, the latest bear raid underscored the bleak outlook as tightening credit, ample inventories and limp demand in the world’s second-largest economy prolong copper’s pain.
Others in the industry, however, said little had changed to justify the brutal legdown.
“Current copper prices are not rational and have distorted away from fundamentals. In the long run, the copper market is in balance,” Wu Yuneng, deputy general manager of Jiangxi Copper, China’s top integrated copper producer, told the conference.
Still, on the sidelines the mood was grim for many.
“Our customers are not interested to restock amid expectations for a further fall in copper prices, so we are not restocking copper either,” said a trader with a small-sized copper fabricator.
The offer from Chile’s Codelco, the world’s top producer, to its Chinese customers to cut surcharges for next year’s contracts by a whopping 26 percent served as a warning about the prospects for next year.
Now, traders and end-users are bracing for a longer downturn than most had expected.
“People are getting more bearish about the next six months. The bearish market will last longer than expected,” said Judy Zhu, metals analyst in Shanghai at Standard Chartered.
With speculators building a bigger short position in New York and Shanghai, traders say the market is at risk of a short-covering rally, but see few prospects of a fundamentally driven recovery until the second half of next year.
Zhu expects London Metal Exchange prices to remain below $5,000 per tonne on average in the final three months of the year, slipping to an average of $4,800 in the first quarter.
Demand in China has barely risen so far this year, after a decade of growth, according to Goldman Sachs.
The investment bank said in a note the recent surge in open interest and falling prices on the Shanghai Futures Exchange reflect weakening “old economy”, or rather manufacturing, in China.
The dramatic price shift downwards was illustrated in the forward curve on the LME, which is now languishing below $5,000 per tonne for the first time since the global financial crisis, with heavy volumes in bearish options dealings pushing prices for June next year to a $10 discount to December 2017.
Despite the slump in futures, the domestic market in China offered a kernel of hope, with spot local premiums hitting their highest since August as some rod producers and other fabricators take advantage of weak prices to buy.
But bonded warehouse premiums in Shanghai, representing imports, have plunged by more than 40 percent to $82.50 per tonne since September and few buyers are concerned about supplies running low with visible stocks in Shanghai above 700,000 tonnes.
Until now, the market had been eager for signs of a pick-up in consumption, with some pinning hopes on government spending on infrastructure and the power grid.
But a Shanghai-based futures trader said he is not anticipating any rebound even next year and a physical dealer said his order book has fallen in the past two months.
And the supply side also looks shaky after news this week that a state-run copper producer is planning 200,000 tonnes of new capacity in Shandong province, illustrating how Beijing’s policy to protect jobs and manufacturing may collide with efforts by producers like Glencore Plc and Freeport McMoRan Inc. to curb output and erode the surplus.
Additional reporting by Melanie Burton in Melbourne; Writing by Josephine Mason in Beijing; Editing by Ed Davies