A trifecta of low Chinese copper imports, slowing industrial demand figures and a stronger dollar pressured copper prices down 3% on Monday.
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.
"China is in a tough spot right now and things will be a bit tough for the next month or two, but the demand side and the wider sentiment around copper will pick up in the second half of the year," said Daniel Smith, metals analyst with Standard Chartered in London.
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 most actively-traded contract, for July delivery, settled down 13 cents, or 3.2%, at $3.9915 a pound on the Comex division of the New York Mercantile Exchange. May-delivery copper was down 12.90 cents, or 3.1%, at $3.9900 a pound.
HSBC China Manufacturing Purchasing Managers Index fell to a 10-month low of 51.1 in May, exacerbating concerns about China's slowing economy. The index is considered a gauge of China's nationwide manufacturing activity and lower readings point to decreasing demand for copper--a key component in manufacturing of everything from cars and air-conditioners to iPhones.
"It would be very nice to see strength in either Western economies or China, at the moment you're not seeing either," said Justin Lennon, base metals analyst with Mitsui Bussan Commodities in New York.
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 0.7% to 76.192 in early afternoon trade.
