Home Commodities China copper: bullish bets unravel as global growth slows

China copper: bullish bets unravel as global growth slows

by SuperiorInvest

The red metal is the key to a greener world. The push for carbon neutrality will increase demand for copper, which is used in everything electrical, from wires to chips. However, this element is also a representative of economic activity. The dimming outlook undermined the bullish case for copper. They have prices fallen by a third since March.

China is the world’s largest consumer of copper, consuming half of all global production. Its weakening real estate market is weighing on demand. New home sales are a leading indicator of copper demand. This is due to its use in appliances, electrical installations and telecommunications equipment.

The outlook for the sector continues to deteriorate. The nation’s largest developers reported a 40 percent drop in home sales in July. Real estate sales are expected to drop by almost a third for the entire year. That would be worse than the decline in 2008.

Weakening demand is reflected in the performance of Chinese copper stocks. Shares of the country’s biggest — Jiangxi Copper, China Molybdenum and Yunnan Copper — have fallen steadily by more than 30 percent over the past year. Aluminum Corporation of China Limited, one of China’s top three producers of copper products despite its name, has fallen 54 percent over the past year.

Investors reeling from losses won’t be comforted by talk of a looming copper crunch. Analysts expect prices to nearly triple to more than $20,000 a tonne over the next three years. Inventories fell to 15-year lows last year. Sales of electric cars in China, which have more than doubled this year, have boosted demand. An electric car consumes 2.5 times more copper than a petrol car.

A tight copper market and its role in decarbonisation will over time renew its investment case. Shares of some local producers, such as Jiangxi Copper, which trade at just five times forward earnings, are starting to look attractive compared to global rivals. Still, the recession will hit demand for electronics and electric cars. This suggests that copper is set to decline further this year.

The Lex team is interested in hearing more from readers. Tell us what you think in the comments section below

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