Copper prices drop as China's demand weakens

Copper prices continued their downward trend on Thursday, driven by worries that the recent rally to two-year highs was fueled by speculation rather than strong physical demand, particularly in China. The three-month copper on the London Metal Exchange (LME) dropped by 0.9% to $9,804 per metric ton, stepping back from the recent peak of $10,208 reached earlier this week.

Ole Hansen, the head of commodity strategy at Saxo Bank, expressed caution, questioning whether the market had advanced too quickly. He highlighted the importance of monitoring actual demand indicators, pointing to weakening signals from China, such as the decline in the Yangshan copper premium from $42.50 to $5 per ton. Recent data also revealed a slowdown in China's manufacturing and services sectors in April, signaling a potential loss of momentum in the country's economy.

Adding to the pressure, Chinese copper producers are reportedly planning to export a significant volume of metal to alleviate the impact of the price surge on their order books. This move, coupled with the possibility of a market correction, could trigger a domino effect leading to a sell-off by investment funds.

Furthermore, the rebound in LME on-warrant inventories of aluminium, linked to sanctions on Russian metal, has contributed to the overall market uncertainty. In the broader metal market, zinc and nickel also experienced declines, while lead remained stable and tin saw a slight decrease in value.

The current retreat in copper prices reflects concerns over the sustainability of the recent rally, with market participants closely monitoring demand dynamics in China and the potential impact of geopolitical factors on metal markets. The coming days are likely to be crucial in determining whether the market will experience a period of consolidation or a more significant correction in prices.