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China’s Downgrade, Falling Imports Sends Copper Futures Lower

May 24, 2017 at 16:35 by Andrew Moran

Copper futures are trading lower midweek amid bad news coming out of China. Moody’s slapped China with a credit downgrade and new trade data show the world’s second-largest economy not importing too much of the industrial metal last month.

July copper futures slipped $0.02, or 0.69%, to $2.57 per pound at 16:15 GMT on Wednesday. Year-to-date, copper prices have remained relatively flat – the red metal has pared most of its first-quarter gains.

Moody’s Investors Service, the credit rating agency, announced on Wednesday that it has downgraded China’s credit for the first time in 30 years from Aa3 to A1 and changed the outlook to stable from negative. Moody’s blamed the decision on the nation’s massive debt levels and lackluster growth in the coming years. Beijing has taken on billions of dollars worth of debt since the global economic collapse to help spur growth and bailout businesses. This year, China has started to rein in its debt levels by winding down stimulus, and there has been an impact on certain sectors.

It was also reported that China’s copper imports plummeted by 41% in April compared to the same time a year ago. Refined copper imports dipped to 202,645 tonnes last month. The immense decline stems from buyers unable to access credit due to heightened regulations and increases in short-term interest rates, says JP Morgan.

In general, metals traders have been suffering from rising financing costs, fierce competition and a slowing economy.

While Chinese banks have anecdotally been maintaining existing credit lines for metals-based companies, it has become increasingly hard to get approval for new lines of credit.

The industrial metal has been falling since the beginning of April. Copper futures have been primarily affected by supplies normalizing as mines restart operations following union disruptions.

Copper investors are also becoming less confident that governments will be demanding the red metal. Over the past year, several nations have pledged to spend money on infrastructure, including the US, the UK, and Canada. Since these infrastructure projects would require copper, traders bet big on the red metal at the end of last year. The US said it would release details of its $1 trillion infrastructure project this summer.

Other metals are not rallying on Wednesday. June gold futures tumbled $4.40, or 0.35%, to $1,251.10 per ounce. July silver futures decreased $0.05, or 0.32%, to $17.08.

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