Copper bulls cheer China demand, bets on more policy support

Business a.m

Copper prices ended the week on an upswing, with prices lifted by strong demand from China, the world’s largest consumer of industrial metals, and hopes for interest rate cuts in 2023 that could stimulate global economic growth.

The positive trend in copper prices was driven by Chinese demand, as the country’s industrial output showed signs of recovery after a COVID-related downturn earlier in the year.

Investors also bet that global central banks may start to cut interest rates next year, which would spur economic activity and potentially boost demand for copper and other industrial metals.

On the London Metal Exchange (LME), the price of three-month copper contracts rose by 1 per cent to close at $8,425 per metric tonne. This marked the metal’s first gain in four days, following a string of losses.

In addition to the recovery in Chinese industrial output, a statement by the Chinese Politburo, a top decision-making body of the Communist Party, helped to bolster copper prices. The Politburo said that China would focus on boosting domestic demand and strengthening the economic recovery in 2024.

Meanwhile, China’s passenger vehicle sales rose by 25.5% in November compared to the same month last year. This robust growth in the auto sector, a key end-market for copper, further supported the positive trend in copper prices.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that copper’s recent correction has opened the door for the market to focus on supply risks and strong demand from China, which has helped copper prices to rebound.

Hansen also mentioned that despite the recent correction, copper prices are still relatively high and subject to volatility. He advised investors to exercise caution, but noted that the medium- to long-term outlook for copper remains positive.

“The strong trade numbers from China highlight a mismatch between worries about the economic slowdown in China and then at the same time the underlying demand for copper, which remains quite strong,” Hansen added.

China’s exports increased for the first time in six months in November, indicating that demand for copper may continue to grow. At the same time, China’s copper imports also climbed 10.1 per cent from the previous month to their highest level in nearly two years.

The strong demand for copper in China has helped to support prices, as evidenced by the growing premium to import copper into the country. The premium, which is the difference between the price of copper delivered in China and that delivered in London, rose to $112.50 per tonne, its highest level in nearly a year.

The recent shutdown of a major copper mine in Panama, as well as strikes at other mines, have also contributed to the upward pressure on copper prices. The Cerro Colorado copper mine in Panama was closed on November 26 due to a breach of the tailings dam that stores mine waste, and is expected to remain closed until December 3 at the earliest. This has reduced the supply of copper available to the market, driving up prices.

Despite the recent rally, the LME copper contract is still on track for its first weekly decline in four weeks. The dollar’s strength has been a key factor in this downturn, as a stronger dollar makes dollar-denominated metals more expensive for investors holding other currencies.

In addition to copper, prices of other base metals on the LME also rose as aluminium gained 0.8 per cent to $2,149.50 a tonne, nickel was up 2.1 per cent to $16,855 a tonne, zinc climbed 0.6 per cent to $2,421 a tonne, and lead advanced  0.8 per cent to $2,035 a tonne.

The one exception was tin, which dropped 0.1 per cent to $24,650 a tonne, though it was still set for its biggest weekly gain since July 7, up around 3 per cent.