Plans for Capital Reform in China Sends Copper Futures to Two-Month High

Copper prices jumped to the highest level in two months Monday after China announced plans for reforming its capital markets. The details haven’t been spelled out completely, but news of potential reform appears to be enough to have investors hoping for a spark in economic growth for the world’s largest consumer of copper.

China’s cabinet Friday unveiled a series of guiding principles for reforming the country’s financial markets, pledging to establish a multi-tier capital market by 2020, encourage mixed corporate ownership and overhaul the system for initial public offerings. The comments helped reassure investors that China’s leadership remains mindful of growth, after months of concerns that the world’s second-largest economy will decline in coming years.

Copper for July delivery, the most actively traded contract, rose 6.9 cents, or 2.3%, to $3.1525 a pound, the highest since March 7 on the Comex division of the New York Mercantile Exchange.

“Finally the base metals markets are reacting to the most direct policy solution available to the Chinese- stimulus,” says Michael Turek, Senior Director and Head of Metals Desk at Newedge. “Our long-held belief has been that this would address structural debt issues while keeping growth on target.”

New measures aimed at opening up the Chinese economy to foreign investment may help strengthen economic growth in the Asian giant, which in turn would bode well for demand for base metals like copper. predicts base metals may be in store for further volatility in the coming 24 hours with noteworthy economic data out of China on tap.

“Copper has been the main beneficiary in terms of price gains so far and that is natural given financed and financiable inventories on the mainland. Nickel continues to be propelled higher by real supply constraints and fear. All in all the complex looks comfortable making steady and only occasionally more spectacular upside progress,” adds Turek.

James Cordier, a principal at Liberty Trading Group, told the Wall Street Journal, “China is the only game in town for copper these days. It appears the leadership is serious about not letting the economy contract too much, and that puts a real floor under copper prices.”

Other Copper News
This week’s price increase follows a tumultuous seven days after Federal Reserve chairwoman Janet Yellen voiced concern about the US housing market growth. On May 7 Yellen predicted economic growth would accelerate in 2014, but she warned that the housing market is recovering at a slower-than-expected pace. The Fed chair suggested tirelessly low inflation will allow the Fed to keep interest rates at current record low levels for a considerable time to come, even as it scales back asset purchases. Her comments caused copper prices to drop to lows of $6,622.25 per tonne on the London Metal Exchange (LME).

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*NASDAQ Copper Chart

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