Copper prices experienced a sharp decline, hitting a two-week low due to mounting concerns about weakening demand. The root causes were twofold: a substantial increase in copper stockpiles and reduced copper imports by China, a major player in the copper market.
The day commenced with LME copper prices standing at $8280 per metric ton and ultimately closing at $8305. However, they dipped during trading to a low of $8265, marking the lowest point since August 21.
The downward spiral was exacerbated by data revealing a staggering 21% surge in copper inventories, reaching 133,850 metric tons.
This inventory level had not been seen since last October, raising significant concerns of an oversupply. Remarkably, these inventories more than doubled since mid-July.
Traders take aback by this substantial increase in copper stocks. Typically, such significant deliveries occur in proximity to the conclusion of a three-month contract, with the next contract end approaching next week.
Adding to these concerns, China, the world’s largest consumer of copper, reported a 5% reduction in copper purchases in August compared to the previous year.
Compounding the situation, the strength of the U.S. dollar index weighed on the copper market. A robust dollar makes commodities priced in dollars more costly for buyers using alternative currencies, including China’s yuan.
While China’s favorable policies have been beneficial to the markets, uncertainties loom, primarily revolving around potential interest rate hikes by the Federal Reserve (Fed) and the European Central Bank (ECB).
Recent strong labor market data and uncertainty surrounding inflation control are contributing factors. This ambiguity is expect to exert sustain downward pressure on copper prices in the near term.