THE copper price has long been held to signal the state of the global economy as reliably as the metal conducts electrons. But that reputation—never fully deserved—is now in tatters. Copper’s plunging price (see chart) says a lot about China, but little about the rest of the world.China consumes about 40% of global copper production. But not all of that goes straight into manufacturing or construction. Chinese companies have also been using copper as collateral for their hard-currency loans: “buy, store, hedge and pledge” in the words of one trader. That has led to an overhang, with far more of the metal stockpiled than users need. Any change in the conditions that created this stockpile can have a big effect on the price.A sign of this is that when the Chinese economy slows, as seems to be happening now, with manufacturing activity weakening for a fifth consecutive month, those stockpiles rise. CRU, a metals researcher, now says the copper-market surplus this year will be four times bigger than it previously estimated, with forecast production outpacing demand by 140,000 tonnes.Chinese data are notoriously opaque, so judging the real health of...
from The Economist: Finance and economics http://ift.tt/1jRiw6a
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