It hasn’t been exactly a rosy start to the year for industrial metal copper. Copper prices have plunged of late thanks to various pieces of poor data, and overall, cooper has managed to be the worst-performing base metal so far in 2014. As others like nickel, aluminum and tin have flourished, Dr. Copper has only be able to post a nearly 13% loss.
That has some analysts wondering if Dr. Copper’s degree is really worth anything.
It also brings up the question whether the time could be right for investors to strike and load up on the now cheap base metal as copper price plumb the depths.
Copper Prices: First the Bad News
Earlier this week, copper prices experienced their biggest two-session drop in more than 28 months. That builds on the red metal’s poor performance since the start of the year. Copper futures can now be had for less than $3 a pound — something that hasn’t happened since July 2010.
The reason: negative news stemming from the key demand driver of the metal, China.
Chinese economic growth seems to be slowing as exports from the BRIC economy have recently stalled. This past February, Chinese exports plunged by the greatest amount since 2009 amid the global credit crisis.
As such, demand for copper imports has recently turned bearish. According to customs data reported by Bloomberg, China imported a total of 380,000 metric tons of unwrought copper and copper products in February, which was a huge about-face after January, when the country imported a record 536,480 tons.
Meanwhile, Beijing’s stores of the metal continue to rise amid lower Chinese import demand. Copper stockpiles have now posted their longest advancement in two years and have continued to pile on supplies for eight consecutive weeks.
Another problem for copper in China has nothing to do with using copper for its intended purpose but as debt collateral. Analysts predict that something like 60% of all the copper in China’s storage warehouses has been used as collateral for various public and private debt obligations.
Two Chinese solar companies — Baobian Electric and Chaori Solar — have effectively defaulted on their obligations. Chaori marked the first time a Chinese company has defaulted on its onshore corporate bonds. The norm had been for Beijing to step in and bail out firms. Investors are now worried that any real credit crisis in China could cause a mass liquidation of copper stores and depress prices.
All in all, it’s easy to see why copper prices have touched at 44-month lows.
Still, Not All Is Bad for Dr. Copper
It’s also easy to see why there could be value for metal at current prices. Oddly enough, China also is the main driver for optimism in copper prices.