A sizzling rally in global copper prices has dampened physical demand for the metal in top consumer China, with buyers bracing for even higher prices. Copper prices have hit historic highs across global exchanges this month, propelled by a short squeeze and funds betting on a copper shortage amid the global transition to a greener economy.
Five copper cathode consumers in China, which accounts for about half of the world’s copper demand, told Reuters that the surging prices have pushed up their costs and prompted clients to scale back orders. Private companies, especially rod makers, have been hit the hardest.
“We’ve cut production by 70%. Many of us now sit on little inventories, cutting or halting operations, but we aren’t looking to replenish fearing prices might drop,” said one rod producer, who sells mainly to the power sector.
The waning demand was reflected by a deepening discount in spot trading and rising inventories in China. Adding to the financial stresses, many cathode buyers took short positions when prices hit 72,000 yuan ($9,947) on the Shanghai Futures Exchange, expecting they would never surpass 80,000 yuan due to China’s weak economic outlook. However, SHFE copper surged to a record 88,940 yuan on Monday, causing many buyers to suffer losses from margin calls.
The record-high copper prices have dampened demand in China, the world’s largest consumer of the metal. Buyers are now bracing for even higher prices, which could further impact their operations and profitability. The transition to a greener economy has fueled a surge in copper demand, but the supply has struggled to keep up, leading to the current price rally and concerns about potential shortages.