Low China Imports, Strong Dollar Pressure Copper
Source: The Wall Street Journal, Tatyana Shumsky (5/23/11)
"Many factories are relying on 'hand-to-mouth' purchases to feed production lines."
Copper futures fell nearly 4% as another sharp decline in China's copper imports and a stronger dollar pressured prices.
In recent months Beijing's tighter monetary policy has forced many factory managers to use up inventories without replenishing them. Companies that use copper to make electrical wiring and other products—the main source of copper demand in China—are struggling to get credit, and many are relying on "hand-to-mouth" purchases to feed production lines.
China is the world's top copper consumer, accounting for 30% of demand, but imports have been on a steep decline in recent months. On Monday, China reported its imports of the metal in the first four months of this year were 756,199 metric tons, 29% less than the same period last year. April refined copper imports fell 48% from a year earlier and down 17% from last month to 160,236 metric tons.
The data sent waves of worry through the market as many have expected China's copper consumption to pick up toward summer. The lower imports underscore the impact of the tighter credit policies and raise concerns about a wider slowdown in China, which is considered the global economic engine.
The contract for May delivery was down $0.15, or 3.6%, at $3.9695 a pound at midday on the Comex division of the New York Mercantile Exchange, after falling as low as $3.9535 in early trade.
A stronger dollar added to copper's declines. Dollar-denominated contracts like Comex copper futures seem more expensive to holders of foreign currencies when the greenback strengthens. The ICE Dollar Index was up 1.1% to 76.40 in midday trade.