Copper crumbled on China slowdown, lowest since July 2010

Copper made a steep plunge on Monday, losing more than 3% of its value as yet another China GDP forecast was revised down. Goldman Sachs became the latest bank to trim the Asian countrys economic growth projection amid tighter financial conditions and reforms.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery lost 2.94% on the day, standing at $3.009 a pound at 9:43 GMT. New York-traded copper prices fell by as much as 3.3% earlier during the session to hit a daily low of $2.994 a pound, the weakest level since July 20, 2010. Sessions high stood at $3.100 a pound.

Copper fell throughout most of last week, pressured down by the stronger greenback after Ben Bernanke said Fed might scale back its monetary stimulus program during the second half of the year and end it by mid-2014. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, but sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops do 7%, which the central bank expects to happen around mid-2014. The metal rebounded on Friday, regaining 2.08%, but still marked a 3.14% weekly loss.

The Federal Reserve is projecting the nation’s economy to expand by 2.3% to 2.6% in 2013 and the unemployment rate to shrink to between 6.5% and 6.8% by the end of 2014. The dollar index, which tracks the greenback’s performance against six major counterparts, hit a two-week high and marked a 2.2% weekly gain. It extended its positive performance through Monday, adding 0.24% by 9:35 GMT.

Chinas GDP growth revised down once again

Goldman Sachs cut Chinas GDP forecast for 2013 to 7.4%, down from 7.8% and below the official target of 7.5%. GDP growth for the second quarter was also trimmed, standing at 7.5%, compared to the previous expectation of 7.8%. Chinas economy is also expected to expand less in 2014 than anticipated. The 2014 forecast was revised down to 7.7%, down from 8.4%.

This comes after The World Bank reduced its forecast for the nation’s economic growth to 7.7%, down from 8.4%. Earlier, during the last week of May, the IMF cut its own economy growth forecast to 7.75%, down from 8%.

Goldman said in a note: “The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue. We estimate this to tighten the FCI [fixed capital investment] by another 30-40 basis points in the coming months, in addition to the FCI tightening of 100 basis points so far this year driven by the rapid yuan appreciation on a trade-weighted basis.” Goldman also said that reforms from Chinese policymakers will be negative for economic growth in the near term.

Also, China’s HSBC PMI flash reading for June stood at 48.3, which, if confirmed, will be the lowest since September. It mismatced a 49.1 forecast by a Bloomberg News survey and is worse than May’s final value of 49.2

The well-being of Chinas economy is crucial for copper demand as the country is the worlds biggest consumer of the industrial metal. The Asian nation accounts for 40% of the global consumption and any contraction or expansion of its economy causes copper prices to fluctuate. Currently, with Chinas government aiming at reforms that will secure mid-term growth, short term activity and copper demand seem dimmed.

Lee Chen Hoay, investment analyst at Singapore-based Phillip Futures said for Reuters: “Policymakers in China are unlikely to be injecting more stimulus into the economy at the moment as Beijing is looking to rebalance the economy from one of consumption as opposed to an economy reliant on exports. This is likely to have an impact on manufacturing activity.”