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China Continues to Impact Copper

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China Continues to Impact Copper

Copper prices steadied on Monday, thanks to a lower dollar and healthy economic numbers from China ahead of another round of growth data later this week from the top consumer.

“Chinese data from Friday is supporting copper and other industrial metals,” Commerzbank analyst Daniel Briesemann told Reuters. “The market is waiting for the next bunch of data from China.”

That next round of data is expected tomorrow, including China’s economic growth numbers from the first quarter of 2019.

The data released Friday showed China had higher unwrought copper imports in March, while declining inventory and concerns over supply deficit also provide support.

The Numbers According to Reuters

China imported 391,000 tons of unwrought copper last month, up 25.7 percent from the previous month and 26.5 percent higher than a year earlier, data released on Friday showed.

China’s March copper ores and concentrates imports were also higher than the year-ago levels, at 1.77 million tons, but down from an unusually strong February.

“This squashed any concerns over soft demand post the Chinese New Year holiday,” ANZ said in a note. “Sentiment was further boosted by strong credit and monetary data.”

The chart below, from Telegram.me, paints a picture of a downward trend in copper stocks over the last year. This trend continues this week as copper stocks in LME-approved warehouses were down 2,000 tons last week, while copper inventories in warehouses tracked by the Shanghai Futures Exchange fell 5 percent from a week ago to 245,178 tons.

Back to Basics

China’s first-quarter economic growth is expected to have cooled to the weakest pace in at least 27 years, a Reuters poll showed, but a flurry of measures to boost domestic demand may have put a floor under slowing activity in March. Industrial output is forecast to have increased 5.9 percent from a year earlier, quickening from 5.3 percent in the first two months, which was the weakest pace in 17 years.

All of these numbers and data swirl while everyone waits for the elephant in the room to stir – trade talks between the U.S. and China. U.S. Treasury Secretary Steve Mnuchin told Fox Business Network on Monday that trade negotiations between Washington and their Chinese counterparts were “making a lot of progress.” That alone is enough to keep investors’ mouths watering with expectation…and the copper prices teetering on a possible explosion.

“When it comes to the trade negotiations, copper could be one of the leading indicators of the current state of talks over the coming weeks,” states Andrew Hecht of Seeking Alpha. “The future strength or weakness in the Chinese economy depends on if a deal takes the pressure off economic growth in the Asian nation. Aside from watching the news cycle for the latest tidbits on trade, copper is currently an excellent tool for monitoring the market’s sentiment over the potential for a deal.”

Further Reading

We touched on the first quarter for copper a couple of weeks ago, but this recent post on Investing.com is a good Q1 recap, as well as a look ahead to the rest of 2019.

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Jim Williams

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