Copper fell below US$8,000 a ton for the first time in six months as prospects for a quick rebound in China’s economy recede.

The metal has tumbled about 7 per cent this month in the face of disappointing economic data from the world’s top consumer. All the gains following the end of China’s COVID-19 lockdowns have been wiped out. Poor domestic demand has forced smelters in the Asian nation ramp up exports that have helped replenish inventories elsewhere.

Funds are turning bearish with short positions outweighing longs for the first time in almost three years. It marks a rapid turnaround in sentiment since the first quarter, when Trafigura Group and Goldman Sachs Group Inc. were calling for copper to hit an all-time high within a year. 

While the energy transition remains supportive of the long-term outlook for the bellwether metal, the absence of any big-ticket infrastructure spending announcements from Beijing means there’s no safety net for investors.

“Metals markets have faced significant pressures after the disappointing April macro data from China, which have acted as a wake-up call to the weak reality on the ground,” Citigroup Inc. said a note. 

There’s also little help for the copper market from the US. The Federal Reserve’s aggressive monetary tightening campaign has undermined demand, and recent comments from officials suggest the central bank may keep raising rates. 

The metal fell as much as 2 per cent to $7,944 a ton on the London Metal Exchange, the lowest since late November, and traded at $7,974 as of 1:01 p.m. local time. 

STILL OPTIMISTIC

Goldman Sachs — a notable copper bull — said commodities prices would “come roaring back” should concerns over a global recession turn out to be misplaced. Copper will return to $10,000 a ton by this time next year, analysts including Nicholas Snowdon said in a note.

For now, a key spread is signaling supply is running well ahead of demand. The metal’s spot price was at a $66 a ton discount to three-month futures on the LME on Tuesday. That’s the widest contango — when futures trade at a premium to the spot price — in data going back to 1994. 

Supply is rising as some challenges faced by key miners have eased. First Quantum Minerals Ltd. ended a months-long dispute with the Panamanian government in March. A massive hoard of copper in the Democratic Republic of Congo owned by China’s CMOC Group Ltd. is set to hit the market after being held up by a dispute over royalties.

That would mean “prices are going to head even lower,” said Jiang Hang, head of trading at Yonggang Resources Co.  

The supply strength is already showing in a rebound in LME inventories from the multi-year lows of the first quarter. 

Copper’s poor performance this year will disappoint investors who saw it as a pure way to bet on the energy transition. The metal is needed in everything from wind turbines to electric vehicles, and most analysts see those new sources of demand creating large deficits sometime in the next decade.

But timing the resurgence is no easy task given the unpredictability of the world economy since the pandemic. Copper is above all a proxy for global growth.

“For people buying into a structural long-term story, the way to play that is to buy an equity, not an option,” said Dwight Anderson, the founder of Ospraie Management LLC.