Copper falls as weak Chinese real estate overrides production slowdown

The copper rally fizzled out quickly after the metal briefly soared past $11,000 per ton, as disappointing economic figures from China and the partial reopening of Indonesia's key Grasberg mine cooled market enthusiasm and drove prices lower.

The recent data on industrial output from China presents a mixed picture. 

While overall industrial production showed a year-on-year increase, signaling continued growth, the pace of this expansion has noticeably decelerated when compared to the momentum observed in earlier months. 

China demand slowdown halts copper rally

This slowdown is a key point of analysis for global commodity markets.

This trend of slowing momentum extends specifically to the metal production sector. 

Ordinarily, a reduction in the rate of growth for metal production would be interpreted as a supply-side constraint, which is typically a positive factor for metal prices, including copper. 

However, this potential positive catalyst for the copper price is being overshadowed by deep-seated issues on the demand side, particularly within China.

The core problem lies in the weakness of domestic demand, which is currently insufficient to absorb the available supply, according to Commerzbank AG. 

Reals estate issue undercuts copper consumption

The primary source of this demand weakness stems from the real estate market, the German bank said. 

China's property sector is once again experiencing a significant downturn, characterised by declining sales, reduced new construction starts, and a high level of financial distress among major developers. 

The real estate sector is a colossal consumer of copper, used extensively in wiring, plumbing, and appliances for new residential and commercial buildings. 

The renewed downturn in this critical end-user market is severely clouding the outlook for copper demand, effectively neutralising any supportive effect that the slowing metal production figures might otherwise have had on the copper price.

Consequently, the market faces a scenario where structural demand weaknesses are exerting greater downward pressure on the price than any mild supply-side tightening.

“The combination of robust production and weak domestic demand suggests that China will export more metal,” Thu Lan Nguyen, head of FX and commodity research, said in a report. 

Copper exports in October are estimated to have surpassed 100,000 tons, which would result in a new annual record for total exports this year.

Since the start of this month, inventories have only seen a slight increase.

“However, if the trend continues, this is likely to favor a further downward correction in the copper price,” Nguyen said. 

Iron ore prices stable

The price of iron ore on the Singapore exchange showed relative stability last week, fluctuating narrowly between $101 and $103 per ton. 

This occurred despite an ongoing stream of negative news for the commodity.

Furthermore, poor iron ore demand data from China did not significantly impact the price on Friday.

China's steel production dropped to 72 million tons in October, marking a 12% year-on-year decrease and the lowest volume since December 2023.

This earlier low was attributed to production cuts implemented to meet annual targets. 

“With 817 million tons in the first ten months of the year, it is also clear that annual production in 2025 is likely to fall below 1 billion tons for the first time since 2019,” Volkmar Baur, FX and commodity analyst at Commerzbank, said in a note.

The continued weakness in the Chinese property market also failed to bolster steel demand within the country.

While the crisis in the Chinese property sector has persisted for over four years, October's data indicates a recent deterioration. 

Specifically, new property sales dropped by nearly 20% in October, and construction starts were even more significantly affected, falling 30% below the level recorded in the previous year.

Baur said: