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Weak China Data Flags More Bad News for Copper

Wednesday, 10 Jul 2013 | 6:56 AM ET
Oliver Bunic | Bloomberg | Getty Images

Copper has taken a beating in recent months, along with gold and other commodities, now analysts warn there is more pain ahead for the red metal, with the slowdown in Chinese growth set to weigh further on prices.

China currently consumes around 40 percent of the world's copper and as the metal is heading into a two-year surplus according to Goldman Sachs commodity analyst Roger Yuan, he advised investors that any further rallies in 2013 represented a good hedging opportunity.

"Our base case of a sharp slowdown in growth of Chinese construction completions into 2014, in the context of above-trend supply growth, presents significant downside risks to global copper demand growth and prices," said Yuan on Wednesday.

(Read More: Copper Falls Below Key Level; Warning Signs Flash)

He cut his price outlook for 2014 to $6,200 per ton, but held his 12-month forecast at $6,600/t.

Copper prices have fallen over 17 percent this year, amid downgrades to the world economic growth outlook, sell-offs in commodities and emerging markets, and fears the U.S. Federal Reserve will start scaling back its monetary stimulus program. The metal is currently trading at $3.08 per pound, having fallen through its key support level of $3.20 in April.

(Read More: Why Gold Bugs May Wish for a China Hard Landing)

UBS also cut its copper outlook on Wednesday, citing surplus concerns. It now forecasts copper prices will average $3.29/lb in 2013, having previously predicted $3.35/lb. Its 2014 outlook remains at $2.90/lb, or $6,393/t.

"We expect the physical market to tighten at the beginning of third quarter 2013, as disruptions to copper concentrate supply work their way through the system. This should support the copper price towards $7,500 throughout July," said Andreas Bokkenheuser, an analyst on the UBS global resources team, in a research note.

(Read More: Why China Delivered Such a Big Miss in Trade Data)

Basic resources stocks and commodities, in particular, have been hit by concerns that the slowdown in China will weight on global demand. May's trade data, out on Wednesday, underlined this, with imports to China slipping 0.7 percent on the previous year. Meanwhile, exports fell 3.1 percent from a year earlier, after rising by an average of 10.4 percent in the first half of the year.

"China's credit growth has likely peaked for the year. Demand may face head-winds in the second half of 2013, on top of typical seasonal weakness," Bokkenheuser said.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave

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