The price of copper on the LME drops below $8 a tonne

The price of copper on the London Metal Exchange fell more than 11% this quarter and is now near its lowest level since November 2022. The red metal has now returned to where it was before China lifted Covid-19 restrictions.

Copper was one of the biggest winners after China reopened in anticipation that housing support would spur demand for industrial metals.

The red metal climbed to a seven-month high in January after the end of the zero-Covid policy but has now given away all its gains.

Copper price at LME fell from a January high of $9/t to a low of $550,50/t due to weaker-than-expected demand in China, usually at the peak of the construction season, and subdued demand in the US and Europe.

Copper is also weighed down by the recent appreciation of the US dollar, which makes copper more expensive for Chinese buyers.

In the meantime, speculators are reducing their bullish bets on copper - the net long position is now at its least bullish in more than 19 weeks, according to weekly stock market data on futures and options.

CHECK: How to invest in copper? [Guide]

The rebound in China may be weakening

Hopes for more demand from China have faded, and recent figures paint a mixed picture for the world's largest copper consumer. While China posted an annual quarterly GDP growth of 4,5% last month, beating expectations - and much faster than the 2,9% in the fourth quarter of 2022, there are concerns over whether the pace of growth can be sustained. China's recovery was mainly driven by consumer spending, while the manufacturing sector continued to lag behind.

A weaker-than-expected recovery in the real estate sector, which has a big impact on copper demand, also weighed on sentiment. China's house price growth slowed in April, adding further evidence that the recovery in the housing market is easing.

Copper inventories have doubled in the last month

Copper inventories at LME warehouses have almost doubled in the last month, meaning that supplies are outpacing end-user demand, putting price pressure on.

Copper inventories at LME warehouses have increased by more than 85% to 96 tonnes since mid-April. Inventories of this metal in LME warehouses have been steadily increasing for several weeks and are at the highest level since October last year.

China also overtook Russia as the largest source of copper stored in LME warehouses. Chinese copper rose to 26 tonnes in April from 675 tonnes in March, according to data from the London Stock Exchange. China is typically a net importer of copper. Rising stocks of copper originating in China suggest Chinese smelters are selling more metal outside of China as domestic demand remains weak.

In the near term, copper prices are likely to continue to be dictated by the pace of economic recovery in China, as well as the path of interest rate hikes by Fed.