CHART: Copper price could follow iron ore over a cliff – by Frik Els ( – August 28, 2014)

The price of copper has been swinging wildly since hitting a near four-year low in March. This week is no exception and the red metal is down 3% in since Tuesday erasing most of the gains from a surge in the price last week.

In midday New York trade on Thursday, December copper fell more than 1.5% to a low of $3.1425 a pound without any fresh news that can be blamed fro the sharp pullback. Weak economic news out of China, consumer of 45% of the globe’s copper, is the number one factor for the weakness in the price.

Manufacturing activity in the world’s second largest economy slowed sharply in August and is nearing contractionary levels, a reading of the country’s services industry dropped to nine-year lows in July while bank lending is at financial crisis levels.

Probably most worrying is weakness in China’s property sector – construction accounts for 60% of copper demand.

Latest monthly data show home sales declining by almost a fifth, the sharpest downturn since December 2008. At the same time unsold inventories of real estate in China have risen by more than 25% this year.

The outlook is bleaker still and some economists are predicting a property bust after years of overbuilding that will make the US subprime mortgage crisis seem puny.

The FT reports that total floor space under construction is “enough to satisfy well over four years of demand at a national level,” while in some of the worst affected provinces, “there is enough supply for more than seven years of demand.”

Outside China the demand picture is not that bright either. Accelerating growth in the US, the world’s second largest consumer of the metal has been offset by continuing soft demand from two other major importing countries Germany and Japan.

While demand factors are putting the copper price under pressure, supply is adding to concerns for the rest of this year and 2015.

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