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Copper Price Near Unchanged After China’s Economic Report

By Jim Williams

The sound of the copper market after last week’s economic update from China was so quiet you could almost hear a penny drop. Part of the lackluster movement in copper prices at the start of this week could be attributed to the London Metal Exchange (LME) remaining closed in observance of Easter, but overall, the reaction around the globe has been consistent.

Investors continue to contemplate China’s gross domestic product data, released last Wednesday, which showed China’s economic growth slowed slightly better than expected at 7.4% in the first quarter. That is down from 7.7% at the end of 2013.

The announcement fell right in line with where Michael Turek predicted, “Maybe they are prepared to take some short-term pain and skim some speculative froth,” states Turek, Senior Director at Newedge, and head of metals desk in New York. “But in so doing they may have to sacrifice some economic growth for that. Of course, being a centralized economic authority, they would say they can accomplish both.”

Copper and stocks often move in the same direction as both are sensitive to shifts in the economic outlook. Traders of the red metal constantly keep a close eye on any reports from China, which accounts for about 40% of global copper demand. In turn, shifts in the market’s outlook on China’s growth tend to affect copper prices. Even though last week ended up 0.1%, copper prices are down 10% so far this year. The recent rash of lackluster economic data from the world’s top copper consumer has played a key role in keeping copper prices under pressure in recent months as some investors worry that slower business activity will dent China’s copper demand.

Chinese Premier Li Keqiang says China will not use short-term stimulus to remedy drops in growth, dampening hopes for significant increases in demand from his country. In a speech at the Boao Forum for Asia conference last Thursday, the premier said, “[w]e will not take, in response to momentary fluctuations in economic growth, short-term and forceful stimulus measures,” maintaining that “[China] will instead focus more on medium- to long-term healthy development.”

Standard Bank analyst Leon Westgate told the Wall Street Journal, “Things would have to get significantly worse than this for copper to get hurt more than it has been.”

In other copper news, copper fabricators in China are paying the highest premium in 29 months to secure delivery of the metal that’s used in everything from electric wires to water pipes. Bloomberg News claims Chinese smelters are hoarding copper in bonded warehouses to try and drive up the local price against the rate in London and sell it abroad at a profit.

A story in Monday’s Wall Street Journal says copper traders are also waiting for more details about Beijing’s plans for economic stimulus after authorities announced plans last month to build more railways and subsidized housing.

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