Copper collapses after China data disappoints

The price of copper is down over 2% today after China revealed worse-than-expected manufacturing numbers.

The HSBC manufacturing purchasing managers index (PMI) came in at 48.7 in June, whereas analysts were expecting a reading of 49.4. Any reading below 50.0 tells us that the sector contracted. This drop in Chinese manufacturing is the second monthly decline in eight months, which is a worrying sign. China is the largest importer of copper in the world, and if it is slowing down we could see a slump in global demand.

The strength of the US dollar is also playing a role in copper’s downward movement. All commodities are traded in dollars, as it is the global reserve currency, so when the dollar is strong commodities become relatively more expensive to buy. Last night, Ben Bernanke of the Federal Reserve stated the US could start tapering its stimulus package towards the end of this year or early next year. The US dollar has risen against most major currencies on the back of this news, and this in turn has pushed copper lower.

High grade copper chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.