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Signs of China reopening set to boost base metals

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Copper, one of the most traded base metals, has had to battle the headwinds of inflation and the slowdown in demand from China, its biggest buyer. Consequently, since the start of the year prices have spent more time in a down trend than in recovery.

But signals this week that China might be reopening to foreigners and potentially loosening it rigid zero COVID restrictions bode well for the metal.

At a major investor conference taking place in Hong Kong this week there was talk that Hong Kong might start reopening properly to the rest of the world in the early part of 2023. Separately, reports on social media, later refuted, that the Chinese government is looking to start relaxing the country’s rigid COVID isolation rules sent both Chinese shares and base metals prices higher. The note posted on Twitter by an influential Chinese economist said that a “Reopening Committee” has been formed by a Standing Member of China’s Politburo and was reviewing overseas COVID data to assess various reopening scenarios. The aim, it said, was to relax COVID rules in March next year.

Though refuted, other measures earlier in October such as shorter quarantines for foreigners, indicated that the focus is shifting towards potentially laxer future measures. The eventual reopening will be crucial, particularly for the manufacturing sector where the restrictions to movement of workers have in some cases seriously hampered production.

Throughout this year the Manufacturing Purchasing Managers Index (PMI), a good indicator of the health of the country’s industry, has been balancing on the edge of contraction. Anything above 50 indicates expansion and the Manufacturing PMI has been coming in between 49.2 and 50.3.

Support measures for the Chinese property sector

Another positive for copper is that the Chinese government has recently put in place several measures to prop up its turbulent property sector.

China accounts for about 50% of the global copper consumption, and of that 20% is bough by the local property sector. Consequently, last year’s collapse of one of the country’s major property investment companies and the subsequent domino effect it had on house sales had major implications for copper. The sector is getting a reprieve after the government launched bailout funds and special loans in October to help developers complete construction of unfinished homes. The People’s Bank of China also lowered interest rates for first-time buyers, the first such cut in seven years.

Still some headwinds

According to a senior economist at Caixin, the Chinese agency publishing Manufacturing and Services PMIs, there is still tremendous downward pressure on the economy and the foundation for economic recovery is not yet solid.

Other headwinds are the high inflationary environments in the US and Europe and the consequent slowdown in their respective economies. The market is keeping a close eye on manufacturing data out of the US and the Eurozone, in particular, Germany, which are not yet showing signs of recovery.

LME copper futures are trading just below $7,500 a tonne at time of writing.

Copper ETFs from WisdomTree

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Copper
Hargreaves Lansdown | Interactive Investor AJ Bell Youinvest | Charles Stanley Direct | EQi
GB00B15KXQ89 COPA USD
WisdomTree Copper – EUR Daily Hedged
EQi
JE00B4PDKD43 ECOP EUR
WisdomTree Copper 1x Daily Short
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B24DK645 SCOP USD
WisdomTree Copper 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFTF36 LCOP USD
WisdomTree Copper 3x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
IE00B8JVMZ80 3HCL USD
WisdomTree Copper 3x Daily Short
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
IE00B8JVMZ80 3HCS USD

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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