The Globe and Mail reports in its Monday edition that copper used to be considered one of the relatively bright spots in the recent downturn of commodity prices. The Globe's Rachelle Younglai writes that now, however, it is becoming yet another victim of China's slowing economy, and the future looks bleak.
IHS director John Mothersole says: "There was always this belief that the deceleration in the Chinese manufacturing sector was going to not just stabilize, but there was this hope that we would see a modest reacceleration. ... Markets are coming to realize that those expectations were falsely held." Copper, like other commodities, has been on a decline since 2011. This year, the red metal is down 20 per cent.
The metal has dropped as low as $2.20 (U.S.) a pound -- the break-even price for some producers.
The main problem is the surplus of copper in the market along with excess capacity in the Chinese copper industry.
Another problem is the amount of copper that has been used as collateral in financing deals. Analysts speculate that at least half the copper in China's warehouses is being used as collateral. If those deals are unwound, it would flood the market with copper and further drive down prices.
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