Copper continues to slide losses extending for seven straight weeks, suggesting sentiment towards the red metal is nothing but pessimistic.
Analyst at Bloomberg Research, Kenneth Hoffman, explained the situation to Mining.com when he returned from a tour of China to find out the true state of copper demand in the country. (Source: Mining.com , last accessed August21, 2015.)
Commodity prices have been under heavy pressure this year. Among them, Copper prices have plunged more than 19% as concerns over a slowdown in the world’s second-largest economy are growing. A slump in the Chinese economy could drag the world economy into chaos.
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Hoffman has been traveling to China for the last 20 years, but what was witnessed in 2015 was dramatically different from the past.
“When I went in April there was a decided change in the mood. On this last trip I was really surprised how negative sentiment has become. I was often asked: ‘What is a bullish thing you could say?’ Everyone was just so bearish and concerned about what was going to happen,” he said.
Hoffman argued that the second-largest economy is shifting toward the service industry. This transition in fact could take a long time and may even have some painful consequences.
“This strategy has been firmly in place for five years – and you’ve seen copper go from $10,000 to $5,000 over this time,” he said. “I asked many analysts and traders in China how long can the downturn last? And it ranged from three years to ten years.”
The country’s equity markets have come under enormous downward pressure as well. The Shanghai’s Composite index plunged more than 30% over the last two months, adding pressure to the falling sentiment.
Hoffman predicts copper demand will fall two to four percent in 2015 due to falling construction activity, lower auto production, and slowing infrastructure spending.
In a spite of a slump in the Chinese economy, many investment banks and research analysts are optimistic over the country’s economic growth and have issued a positive outlook. With the current situation, Hoffman says evidence suggests more contraction and downturns are on their way and that it “shouldn’t be a big surprise to anybody.”
All told, commodity prices are a leading indicator of future economic growth. With the prices continuing their decline, the global economy as well as the U.S. economy could very well be on their way to a severe economic slowdown.