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Copper Update: More Cuts in China?

Copper Update: More Cuts in China?

By Jim Williams

Copper prices continue to move away from a six-week low after disappointing Chinese inflation data, plus speculation that policymakers in China will have to introduce even more stimulus measures to jumpstart their economy’s lackluster growth.

Government data shows that Chinese inflation last month rose 1.2%, a tick below expectations of 1.3% and down from 1.5% in April.

The producer price index (PPI) fell by 4.6% last month. PPI measures the change in the price of goods sold by manufacturers. It is a leading indicator of consumer price inflation, which accounts for the majority of overall inflation. A higher than expected reading should be taken as positive/bullish for the CNY (the currency used in China), while a lower than expected reading should be taken as negative/bearish for the CNY.

Click on image for interactive chart. 

The more-than-expected drop last month is a cause for concern for the health of the world’s second largest economy and largest consumer of copper (China accounts for nearly 40% of global demand).

China’s economy grew at the slowest pace in six years in the first quarter. Add to that disappointing trade data released Monday indicating recovery in the broader economy remains fragile and may need further government stimulus. Since November, the People’s Bank of China has introduced a series of stimulus measures, including lowering interest rates three times and cutting the reserve requirement ratios of major banks twice, in order to spur economic activity and boost growth.

On the Comex division of the New York Mercantile Exchange, copper for July delivery tacked on 1.2 cents, or 0.43%, to trade at $2.708 a pound during European morning hours Tuesday after hitting an intraday peak of $2.715, the most since June 4.

Further Reading

Here are a few articles talking about copper and the economy. First, an interesting article on the mixed views on the outlook of the price of copper.

Next is an article from Copper Investing News released yesterday. Click here to read the article, Lower Copper Price Squeezing Margins for Higher-cost Producers.

And here is a story from Bloomberg Business that suggests The Economy Still Hasn’t Recovered, and the U.S. Probably Lost a Decade.


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