If a major problem breaks out in Chinese industries, demand for the metal could be affected.
With a 3% decline, the price of copper closed yesterday, after falling on the London Metal Exchange to US $ 4.15 per pound, a value that compares with US $ 4.28 on Friday of the last week. This is mainly explained by the prospect of a default on the debt of the Chinese real estate developer Evergrande Group, which has set off alarms regarding demand in that country. “The potential bankruptcy of Evergrande would induce a drop in the price of metal commodities, given that China is the world’s largest importer of this type of raw material. In the case of copper, it represents 50% of global consumption. Currently, China generates 18% of the world’s GDP, so what happens with Evergrande would have repercussions on a global level ”, warns the executive vice president of Cochilco, Marco Riveros.
Regulators assured that liabilities of US $ 305 billion could generate broader risks for China’s financial system if they are not stabilized, especially for the real estate sector, which represents more than 22% of the total consumption of the metal in that country. Analysts suggest that if Evergrande’s situation escalates, it could trigger massive sales that cause a minimum decline of 10% in copper, which could even cause the mineral to fall sharply below US $ 4. However, it will also be He foresees a major reaction from the Chinese government, which could consider intervening the company to avoid a major disaster and other industries to be affected.
The case acquires special relevance because between 18% and 25% of China’s GDP would be linked to the real estate sector, with Evergrande having around 1 million to 1.5 million apartments under construction, in addition to managing close to 2,800 neighborhoods in more than 300 cities. The head of studies at XTB Latam, Manuel Ugalde, warns that “the case sets up a slightly more negative scenario for the price of copper, where a less dynamic Chinese real estate sector and an even slower Chinese economy as a result of contagion than it may have the collapse of Evergrande, which will come both from the lost jobs and from a greater systemic risk that will increase the cost of financing for Chinese companies ”.
He added that this new shock to copper demand could send the red metal down sharply. The executive director of Plusmining, Juan Carlos Guajardo, added that “this is not just any crisis, it is a relevant situation, the problem could be that changes are generated in real estate developments in the country.” However, he maintained that “I believe that the government is going to avoid a systemic crisis, but it is going to take advantage of it in some of its objectives, such as the cooling of raw materials, reinforcing the trend that had been taking place. In addition, you will take advantage of cleaning the relationship between regional governments and real estate developers. I see a limited systemic risk, but trends are going to reinforce that allow better control of some aspects of the economy ”, he summarized.
Source: El Mercurio