Copper Prices Tumble On China Loan Concerns

Today’s Spotlight Market
While Copper inventories held in approved warehouses by the Shanghai Futures Exchange are falling, traders fear that a huge amount of Copper remains in the country is being used as collateral for bank loans. Shanghai Futures Exchange stocks have fallen to 92,000 tons as China?s Copper imports fell be 15.6% in May. However, it is believed that nearly 700,000 tons of Copper may be held outside of exchange warehouses, with much of the inventory believed to be used as collateral towards loans. It is this potentially huge Copper supply that is keeping traders nervous should banks seize these assets and liquidate holdings to pay back outstanding loans. ?


Dr. Copper appears under the weather of late because of concerns of potential fraud involving loans against base metal inventories in China.? Chinese authorities have been investigating allegations that companies have been using the same stocks of Copper and other base metals held in the port of Qingdao as collateral against loans. This issue may force banks to withhold financing by Chinese companies using their physical commodity holdings collateral, and may force the liquidation of commodities to obtain needed funds. This could put additional pressure on Copper prices in the near-term as the rate of Chinese imports tumbles as inventories are liquidated. We are already seeing some weakness in Chinese imports, which fell by 1.6% in May, due mainly to lower imports of both Copper and Iron Ore. This could be a sign that Chinese economic growth rates are slowing more than analysts? forecasts. It should be noted that the spot price premium that Copper trades at in China has fallen recently, which could be a signal that domestic supplies are not as tight as previously thought and that local demand is starting to weaken which is not a happy prospect for Copper bulls in the near-term.


Technical Notes? -? View Today’s Chart
Looking at the daily chart for July Copper, we notice the uptrend line drawn from the March 19th lows has definitely been broken as prices have plunged the past several session on the news of potential? fraudulent loan backed by metals in China. Trading volume has increased as well of late, which could be a sign that large speculators and trend-following traders are adding to short positions. Prices are now well below both the 20 and 200-day moving averages and the 14-day RSI has turned weak with a current reading of 36.44. Support is now seen at the May 1st low of 3.0030, with resistance seen at 3.0985.



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