By CLEMENTINE WALLOP
China this week returned from the Lunar New Year holiday, but the country's copper buyers are acting as if they're still on vacation.
The red metal has slumped 4% from Monday's open price, its worst week this year, as the widely expected increase in demand from the world's biggest buyer failed to materialize. After rising through January on signs of a global economic recovery, copper has now erased its 2013 gains and is 0.1% down since the start of the year.
Bloomberg NewsA worker supervises the filling of moulds with liquid copper from a furnace. Copper prices are down this year because an expected increase in demand from China has failed to materialize.
Analysts have pointed to the threat of curbs on the nation's property sector as a headwind for copper, which is used widely in construction and is therefore sensitive to cues from the real-estate market. This week, several local governments in China announced measures to restrict financing to potential home buyers following recent real estate price rises.
"It's not going to be a fantastic year," said Ker Chung Yang, investment analyst at Phillip Futures in Singapore. "Judging from current market sentiment, China is likely to take a cautious approach."
Added to that are signs the Federal Reserve may end stimulus efforts sooner than expected, compounding the bearish mood in the market. That may drive investment away from commodities, as the U.S. dollar strengthens or interest rates rise, because other assets become more attractive.
Expectations for rising China demand had been high since the start of the year as recent data showed a recovery in manufacturing following 2012's slowdown, which dampened copper demand and capped prices. Copper prices rose 4.4% in 2012, as loose monetary policy in the U.S. and Europe heightened investor interest to outweigh ready supply and slow demand in China.
"On the ground, nothing has changed. Physical buyers are still there, and they haven't jumped off a cliff, but people haven't seen the restocking they've been waiting so anxiously for" since China markets reopened after the Lunar New Year, Barclays commodities analyst Sijin Cheng said.
China's warehouses and others around the world are full of excess copper, meaning there is plenty of stock available for buyers. Stocks in bonded warehouses in China are at about one million tons, more than three times their level at the beginning of 2012.
Meanwhile, London Metal Exchange copper stocks in all global terminals have jumped more than 30% since the start of the year to about 420,250 tons. The LME is a so-called market of last resort, where participants deliver metal to approved terminals in times of slack demand and can draw down metal in times of strong consumption.
Still, copper consumption in China has improved from its third-quarter trough last year, but it remains below average 2012 levels, Simon Hunt, chief executive of consultancy Simon Hunt Strategic Services, said in a report this week. Mr. Hunt isn't expecting China demand to rise until next month, with the second quarter marking peak buying activity for this year.
Some China buyers have also signaled to their suppliers that they would be prepared to buy copper at no higher than $7,700/ton given continuing sluggish fabrication rates and caution after last year's weak market conditions, according to London and Singapore-based traders who declined to be named. It was last trading at $7,925 a metric ton on the London Metal Exchange.
Write to Clementine Wallop at clementine.wallop@dowjones.com
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