Copper Prices Reach One-Month High on China Stimulus Hopes
Copper prices surged to their highest level in over a month on Monday, driven by expectations of additional economic stimulus measures from China. However, concerns about weak manufacturing data, dwindling demand, and a stronger dollar limited gains in the market.
On the London Metal Exchange (LME), benchmark copper rose by 0.3% to $8,689 per metric ton at 0948 GMT, reaching its highest level since June 22. This positive momentum is shaping up to make it the best-performing month for LME copper since January.
In January, hopes for increased manufacturing activity and robust demand were reinforced by the end of China’s zero-COVID policy. Nonetheless, China’s manufacturing sector has remained contracted for the fourth consecutive month, suggesting low levels of metal consumption.
Despite these challenges, China’s top leaders have vowed to ramp up support for the economy during its painstaking post-COVID recovery, focusing particularly on bolstering domestic demand. Market participants believe that these signals indicate more stimulus measures are on the horizon.
One copper trader noted, The market is trying to overlook the data. The general perception is that there will be further Chinese stimulus, if only to prop up the property market. However, the stronger US dollar is currently impeding progress.
The appreciation of the US currency makes dollar-denominated commodities more expensive for holders of other currencies, potentially dampening demand and prices. Fortunately, the dollar is poised to record a monthly loss due to the possibility that the US Federal Reserve has concluded its aggressive rate-hike cycle with a 25-basis-point increase last week.
The dollar’s impact is not as negative as before and could lend support to base metals. However, an improvement in underlying fundamentals is necessary for a healthy outlook, said the copper trader.
In addition to these factors, rising stocks in LME-approved warehouses have been weighing on LME copper prices. The percentage of cancelled warrants, representing metal earmarked for delivery, is now less than 1%, in stark contrast to the 68% recorded in late June. This decrease has assuaged concerns about copper availability in the LME market.
As for other metals, aluminum climbed by 0.9% to $2,242 per metric ton, zinc gained 1.8% to $2,542, lead declined marginally by 0.1% to $2,157, tin remained largely unchanged at $28,750, and nickel experienced a 1.4% decrease to $22,000.
The news about copper prices reaching a one-month high on the hopes of Chinese stimulus provides insight into the complexities of the market. While positive indicators, such as increased copper prices, may be encouraging, concerns regarding weak manufacturing data, demand, and the impact of the dollar emphasize the need for a balanced view. With China’s commitment to boosting its economy and the performance of various metals, market participants remain cautiously optimistic about the future.
