By Rhod Mackenzie

Copper futures fell to $3.8 a pound on June 27, off a six-week high of $3.9. The alarming macroeconomic background put pressure on expectations regarding the demand for industrial resources. The Chinese government has refrained from introducing stimulus measures to support the struggling manufacturing sector, while the Fed, the ECB and the Bank of England, on the contrary, intend to continue raising interest rates and further restricting industrial production.

The Chinese factor worries investors a lot. China is a major consumer of copper, so expectations regarding the processes in the Chinese economy are reflected in the prospects for demand for this metal. Premier Li Qiang confirmed earlier that the country is still on track to meet its annual GDP growth target of around 5%, Prime reports.

However, major market players continued to express concerns that copper supply might fall short of expectations of high long-term demand as the metal is a critical feedstock for the transition to renewable resources. LME and COMEX copper stocks remained at low levels, down 7% in the week ended June 23. In addition, Chile said that output this year, according to a number of estimates, will fall by as much as 7% - and this is after a decline of 10.6% in 2022.

After falling 17% from its high at the beginning of the year, copper prices have begun to recover, rebounding 12% from a May 25 low to a high of $3.96 a pound, Insider writes. This growth may indicate new growth in the economy, even though many economists are worried about an impending recession, analysts polled by the publication believe.

The Bank of China will succeed, but restraint should be exercised

Copper prices have long been regarded as a leading economic indicator as it is used in various sectors of the economy. In fact, their growth may signal an increase in demand and, therefore, an increase in economic activity.

By June 21, they exceeded $8,500 per ton. This happened against the backdrop of support measures taken by the Bank of China to stimulate the economy, especially the real estate sector, confirms Alexey Golovinov, an analyst at Promsvyazbank's economic and industry analysis department. An additional growth factor, according to him, is the low stocks of metal on the LME, but it is extremely difficult to fully assess the situation, since the exchange does not show the real stocks that are stored in shadow warehouses.

“I expect that the Bank of China will be able to “disperse” the country’s economy, due to which demand for industrial metals will begin to grow, and hence prices. Of the nearest macroeconomic data that you should pay attention to is the PMI in the industrial sector of China on June 30, ”says the expert.

In the last month, copper prices have risen against the backdrop of a weakening correction of the dollar index, which happened due to a pause in raising interest rates by the Fed, said Dmitry Puchkarev, an expert on the stock market at BCS World Investments. Supporting factor was the decision of the People's Bank of China to reduce interest rates on loans under reverse repurchase transactions and loans for a period of one year issued under the MLF - this could support economic activity in the country and demand for copper.

“In the medium term, expectations for copper are subdued. The market is now paving the way for the resumption of growth in Fed interest rates, which will contribute to the growth of the DXY index and correction in the prices of this metal. The tough position of the world Central Banks on monetary policy will also be a deterrent for demand for the metal,” Puchkarev believes.

Copper swing: positive vs. negative

Copper rises in price against the backdrop of reduced supplies to the world market due to the shutdown of work at the Andina mine in Chile, owned by Codelco, which is the largest metal producer, Georgy Svirin, a specialist in international financial markets at the Finmir marketplace, points out. Quotes for September futures on the morning of June 26 on the Comex exchange grew by 0.36%, to $3.84 per pound, but by the evening they began to decline by 0.5% and are trading near the mark of $3.796 per pound (about 0.45 kilograms ).

In 2023, copper prices will be negatively affected by economic factors, the analyst believes. According to him, this is an increased interest rate by the Fed, which leads to an “expensive dollar” and a fall in metal prices as a result, as well as expectations of a recession in the global economy and the slow recovery of the Chinese economy after the removal of covid restrictions.

However, there are also positive factors that will have a positive impact on the dynamics of copper prices this year, as well as in future years.

First of all, this is the decarbanization of the economy, Svirin is sure. That is, the readiness of companies to develop green energy - to increase the volume of wind generation, solar energy and other sources of renewable energy. In addition, an increase in the share of "green transport" - electric cars and electric buses - will lead to another round of increased demand for copper in the future.

After reaching a high of this year in early January at $4.35 a pound, copper saw a decline, but only until there were large purchases near the 3.6 level.

“Now, after copper began to rise in June, we can expect further upward movement to the level of $4.2 per pound. So far, there is no definite dynamics in the movement of prices for copper - they are in a channel with an upper limit of $4.2 and a lower limit of $3.6. If the price fixes above 4.2, then the price of copper may rise to $4.6. As for the technical picture at the London Metal Exchange (LME), at the moment copper has every chance to rise to $9,000 per ton,” Georgy Svirin expects.
This article originally appeared in Russian at expert.ru