(Bloomberg) -- Copper futures fell as concerns about China’s economic outlook continued to dim forecasts for market demand.

Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns over debt levels in the world’s largest consumer of commodities. Those concerns have more than offset optimism that the US Federal Reserve might cut interest rates next year, a move that could boost demand and allow companies to hold more inventory for longer. The firm last cut its credit rating on China in 2017. 

“The problem that we have more than anything else is a sentiment issue that’s affecting demand,” said Michael Widmer, head of metals research at Bank of America Merrill Lynch. “People do not want to spend in China.”

Prior to this week, the metal had rallied 7.2% from a November low, propped up by expectations the Fed’s aggressive tightening cycle would be coming to an end and fears of tighter global supply as the Cobre Panama copper mine is put on care and maintenance. Prices started to reverse Monday as traders began to see opportunities for profit-taking, with the decline continuing into Tuesday after the debt downgrade was announced.

Read more: Panama to Shut Down Giant Copper Mine After Court Ruling

Still, while Moody’s lowered its outlook for China’s sovereign debt, it retained a long-term rating of A1 on the nation’s sovereign bonds. If the deepening gloom around the economy — particularly the property market — ultimately spurs government support, it could once again help boost demand for commodities.

“What you really need is the government to come out and spend,” said Widmer.

Copper futures traded on the London Metal Exchange fell 1.2% to $8,337.50 a metric ton as of  12:49 p.m. in New York. All other main LME metals also declined. 

--With assistance from Archie Hunter and Jason Rogers.

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