in the last days, Copper prices It managed to break the previous highs after several weeks of decline. Prices have managed to reach demand areas in the short term, which usually leads to bullish strength. This confirmed the recently formed bullish trend in the copper market, ending the overall downtrend that started earlier in 2022. The new data indicates the beginning of a bull market, which increases the possibility of further upward price movement. However, buyers should not dismiss pullbacks, as prices are still historically high.
In general, the Monthly Copper Metals Index (MMI) It increased by 3.19% from December to January.
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Chinese speculation leads to a sharp rise in the copper market
Throughout November, the unwinding of China’s anti-coronavirus policies sent copper prices rising more than 3% for the first time since March. However, the copper market started to move sideways again in December as disruptions continued to rise. Now, with major cities nearing and passing the peaks of COVID, copper prices are looking bullish again.
While Chinese demand has not necessarily “recovered”, the markets are optimistic. in Last financial times In the article, Caroline Payne, commodity economist at Capital Economics, noted “We expect a rapid recovery in the Chinese economy.” Payne is not alone in her feelings. Already, during the first two weeks of the year, copper prices jumped more than 7%. This takes them to their highest level since June.
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Downside risks: rural cities next, the construction sector is still weak
While the numbers appear to have peaked in some areas, the recent COVID wave in China is far from over. Zheng Guang, former chief epidemiologist at the Chinese Center for Disease Control and Prevention, warned, “Our focus is on big cities. It’s time to focus on rural areas.” This may indicate that China is still two to three months away from its nationwide peak. Of course, recoveries in major cities will have a greater impact on markets than in rural areas. However, this means that we will not see the true extent of post-COVID Chinese demand until the second quarter. This is more than enough time for the markets to speculate excessively. Furthermore, the general uncertainty related to China’s recovery and the continued threat of COVID-related disruptions will increase the potential for volatility.
Copper Market: Future Issues Awaiting China
When China finally finds itself on the other side of the epidemic, many other problems await. For example, the construction sector remains weak amid the ongoing real estate crisis. Of course, China has made continuous efforts to support this sector. more Last It was a move away from the “three red lines” policy. This shift has helped relieve debt for developers, but the industry is still in decline. The fourth quarter of 2022 marked the sixth consecutive quarter of annual declines in home sales.
According to the China Construction Machinery Association, excavator sales in China, an agent for construction activity, saw A 23.8% decreases. China’s aging population will add another layer of difficulty to the recovery, with many wondering who is left to build for in the future? Historically, the construction industry has served as one of the largest consumers of total copper demand in China. If declines persist and demand sees a limited recovery, this could lead to a strong downturn in the country’s copper market.
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The US dollar falls as inflation slows
Meanwhile, the decline in the US dollar added more support to the copper market. In fact, the US dollar index, which has an inverse correlation with commodity prices, is now at its lowest point since June.
Also, sluggish inflation figures continued to weigh on the US Dollar Index. While some hoped for a more aggressive downfall, the Consumer price index It fell 0.1% in December, marking the sixth consecutive month of decline. For the markets, this likely means that the Fed will continue on its current path after slowing the pace of rate hikes last month. The next meeting of the Federal Reserve will be held from January 31 to February 1. This may result in a smaller increase after the 50 basis point increase in December. In a recent speech, Philadelphia Fed President Patrick Harker commented, “Raises of 25 basis points would be appropriate going forward.”
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The biggest moves in the copper market
- Indian primary copper prices witnessed the largest increase on a monthly basis with prices rising by 8.23% to $8.46 per kg as of January 1st.
- Prices of the Korean copper sector rose 7.23%, at $10.54 per kilogram.
- Three-month preliminary copper prices on the London Metal Exchange saw an increase of 4.4% to $8,400 a metric ton.
- Meanwhile, Japanese base copper prices fell just 0.14% to $8,612 a metric ton.
- Chinese primary monetary copper prices also eased with a decline of 0.15% to $9,508 a metric ton.