Copper Traders Keep One Eye on China, the Other on Demand

All the excitement about the surprise 2014 rally in commodities must be making copper traders wonder if they’re living in the same year. Copper is down about 9.8 percent, the biggest drop among the main six materials on the London Metal Exchange.

Chinese data released today showed higher imports of the metal used in wires and plumbing. Though demand remains strong, traders have been reacting more to slower growth and less credit availability in the world’s second-largest economy.

What a contrast from what analysts called the “commodities supercycle” of the past decade or so, when China’s insatiable demand drove raw materials prices to new highs. Traders watch China especially closely, because the country is the biggest consumer of pretty much everything that comes out of the ground.

Copper prices recovered a bit today. They fell the most in two weeks yesterday on concern that Chinese manufacturers will default.

Anxiety verging on a panic about a Chinese credit crunch has been rippling through commodity markets for months. On March 10, iron ore -- the key ingredient in steel -- plunged 8.3 percent as steel mills struggled to find funding.

Now, China is investigating how some companies are using borrowed money, Bloomberg News reported yesterday, as defaults may increase in the nation’s $4.2 trillion onshore debt market. The probe, by the nation’s top planning agency, comes after Shanghai Chaori Solar Energy Science & Technology Co., a maker of solar cells, on March 7 became the first company in China to default on onshore securities.

Why, then, are copper traders reacting more than those in other commodities markets? Because there’s plenty of copper in the world, including lots stockpiled in China, whereas some other metals are heading for shortages.

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