Update | China slowdown key factor to more sideway moves in iron ore and copper prices

Prices of iron ore and copper, two base metals whose consumption in China are world leading, are set to trade sideways for longer as demand growth from the increasingly indebted nation is insufficient to lift prices amid rising supply, analysts say.

Erik Norland, executive director and senior economist of CME Group, a global operator of marketplaces for financial derivatives on products including energy and metals, said China’s slowing economic growth on the back of a rising debt burden is a factor.

“When debt levels are low, accumulating additional credit adds quickly to gross domestic product,” he said. “When debt levels become relatively high, however, additional borrowing adds little to GDP as the new loans serve mainly to refinance existing debt.”

After rallying 70 per cent between December 2015 and April this year, iron ore joined copper in trading sideways.

Both suffered gruelling bear markets after peaking late 2010 and early 2011 following Beijing’s four trillion yuan economic stimulus package in 2009 that featured heavy infrastructure investment led by local governments.

Iron ore was the harder hit of the two, trading at about a third of its peak value, while copper is trading just below half its peak levels, Norland noted.