Copper prices were steady near a three-month bottom on Tuesday morning, following significant losses since last week as data from China failed to inspire optimism. The weakening of the dollar also failed to invigorate the red metal, analysts noted, indicating a worsening of fundamentals.
Copper futures for July delivery on the COMEX division of the New York Mercantile Exchange had shed 0.14 percent to $2.643 per pound as of 08:35 BST today. The contract has lost nearly 10 percent since mid-May.
Data from China last week showed that new housing starts declined 16 percent in May, while fixed asset investment growth slowed.
“The prospect of lower growth in fixed asset investment and a clampdown on polluting heavy industry will remove significant pillars of commodity demand and prices,” Capital Economics said.
Chinese authorities could yet, however, introduce further economic stimulus measures. Such measures would likely be directed, at least in part, towards the construction industry, supporting copper prices. Copper is widely used in wiring and plumbing, hence construction activity in China is a strong indicator of overall demand prospects for the red metal given that the country consumes 45 percent of all global copper supplies.
Some analysts have noted that iron and cement could make greater gains were construction in China to be stepped up.
It is also possible that demand for copper in the world’s second economy could slow dramatically next year, as the Chinese government plans to shift away from the red metal towards the use of aluminium in urban electricity grids.
“An increased rate of substitution to aluminium alloy, from copper, is highly likely...the China price of copper is 3.4 times that of aluminium (and substitution becomes profitable at a ratio of 2.5/1),” Goldman Sachs analysts led by Max Layton said earlier this month. “We estimate that between 100kt and 250kt of copper demand could be lost owing to this development in 2016, compared with our base case of 400kt China demand growth in 2016."
The 2.5 percent decline of the US dollar over the past two weeks has also failed to revive copper prices, which have lost nearly five percent over the same period.
“Over the past one and a half weeks any weakness (in the US dollar) has done nothing for metals whereas strength has pushed them lower, suggesting there are wider concerns about fundamentals,” Nic Brown, head of commodities research at Natixis, said.