TOKYO -- Copper prices have surged in recent weeks amid growing optimism about the economic outlook for China and the world, but some warn that the rise has outstripped real demand and a correction could be in the offing.
A rally that began in July has pushed the metal's price to a roughly three-year high. Copper hovered around $6,900 per ton on the London Metal Exchange in off-hours trading Monday evening Japan time, up more than 20% from the most recent low in early May.
This owes largely to demand from China, which accounts for more than 40% of global copper usage. The official manufacturing purchasing managers index for August released Thursday clocked in at 51.7, staying above the boom-or-bust line of 50 for a 13th consecutive month. Infrastructure spending is expected to help keep the economy on an even keel until October -- when the Communist Party will hold its twice-a-decade congress -- ensuring steady demand for copper.
Infrastructure investment is fueling copper consumption elsewhere in Asia as well. And investors expect continued economic improvement in Europe as political turmoil settles down.
The global recovery is firming up, European Central Bank President Mario Draghi said in an Aug. 25 speech.
Copper, used in applications ranging from wires to cars, has earned the nickname "Dr. Copper" for its usefulness as an indicator of the health of the global economy. But the metal's recent surge has led some to second-guess a diagnosis that might be too rosy.
"Real copper demand isn't as strong as the LME price" would suggest, said Shingo Taira at Japanese trading house Mitsui & Co. Spot premiums -- the spread between prices on the London exchange and spot markets -- have been shrinking since late July. The premium on the Shanghai spot market has fallen 7% since then, standing at $65 per ton in late August, even as the price of copper has marched upward.
Richard Wilson, chairman of metals at U.K.-based Wood Mackenzie, sees the influence of speculators at work in the rally. Chinese demand, while brisk, falls within expectations, he notes. Wilson predicts a correction once investors turn risk-averse. The research firm expects copper to average less than $6,000 per ton this year.