Copper prices seem to be intent on pushing to new highs, but what is driving the momentum? A combination of a weaker US Dollar and developments within the Chinese macro backdrop have helped fuel a fresh wave of buying.
Copper futures are now up around 30% off the YTD lows and look poised for further gains with price now trading at fresh YTD highs.
Shifting US rates view
A jump in US jobless claims has weighed heavily on USD sentiment. On the back of shorter-than-forecast jobs data and the recent Q1 GDP undershoot, traders are sensing a shift in the strength of the US economy. As a result, pricing for expected US rate cuts has moved forward, now favouring September form November previously. If we see any undershooting in the US data this will no doubt strengthen September rate-cut expectations, pulling USD lower near-term and pushing copper prices higher.
China demand
Alongside USD impact, copper prices are also responding to heightened expectations of potential Chinese QE. The Chinese politburo has signalled a deeper concern for the crisis in the property market, raising expectations that fiscal help will follow shortly.
Additionally, the latest data out of China shows that copper imports continued to surge last month, despite higher prices, reflecting an uptick in demand. “This tallies with the recent strength we’ve seen in China factory data and while this narrative holds, copper prices look likely to remain supported near-term,” said James Harte, an analyst with Tickmill Group.
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Industrial metals generally are now seeing an uptick in performance and are outpacing global stocks. Investors are seemingly more confident that current higher interest rates will not choke off global growth. In addition, many are now anticipating that the European Central Bank will cut rates in the Eurozone this summer, signalling a return to a lower rates environment.
There is increasing evidence that the Chinese economy is improving. The latest Chinese purchasing managers’ index signalled an expansion in factory activity.
Less copper, more demand, higher copper futures prices
There is definitely a tighter supply story for copper here. China’s copper smelters process more than half of the world’s supplies, but have just agreed to joint production cuts as there is now a shortage. Morgan Stanley has said mined copper output is likely to call by 0.7% this year. We believe that may be a conservative estimate and it could be closer to 1%.
Ole Hansen, an analyst with Saxo Bank, reckons the European and US construction sectors are now in comeback mode. Factory activity in the US is also expanding now and Bank of America has raised its own forecast for industrial metals, where it sees a combination of rising demand and a tightening of supply.
The rally in copper prices has seen the market breaking back above the 4.5785 level and back above the prior 2024 highs. With momentum studies bullish and the copper price at fresh highs, the focus is on a continuation higher with 4.84 the next target for bulls.
Copper futures prices on COMEX were trading at USD 4.82 today, up from a previous close of USD 4.77. This is a gain of 31% over the last six months.
