China copper: bullish bets unravel as global growth slows

The red metal is key to a greener world. The push for carbon neutrality will boost demand for copper, used in everything electric from wires to chips. Yet the element is also a proxy for economic activity. The darkening outlook has undercut the bull case for copper. Prices have fallen by a third since March.

China is the world’s biggest copper buyer, consuming half of all global output. Its faltering property market is weighing on demand. New home sales are a leading indicator of copper demand. That is due to its use in appliances, electrical wiring and telecommunications gear.

The outlook for the sector is continuing to worsen. The country’s biggest developers reported a 40 per cent drop in home sales in July. For the year, property sales are on track to fall by nearly a third. That would be worse than the 2008 decline.

The weakening demand is reflected in the performance of China’s copper stocks. Shares of the country’s largest — Jiangxi Copper, China Molybdenum and Yunnan Copper — have fallen steadily over the past year, down more than 30 per cent. Aluminum Corporation of China Limited, one of China’s top three copper product makers despite its name, is down 54 per cent in the past year.

Investors nursing losses will not be consoled by talk of a looming copper crunch. Analysts expect prices to nearly triple to more than $20,000 per metric ton in the next three years. Inventories fell to 15-year lows last year. In China electric car sales, which have more than doubled this year, have added to demand. An electric car uses 2.5 times the copper of a petrol car.

Copper’s tight market and role in decarbonisation will, in time, restore its investment case. Shares in some local makers such as Jiangxi Copper, which trade just five times forward earnings, are starting to look attractive relative to global peers. Yet a recession will hit demand for electronics and electric cars. That suggests copper has further to fall this year.

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