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Slowing Chinese Economic Data Pushes Copper Prices Down

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Slowing Chinese Economic Data Pushes Copper Prices Down

The price of copper took a hit yesterday after China released data on its economic growth. Well, growth probably isn’t the right word to use.

Investors woke up this morning to see London copper prices continued to fall overnight, extending a sharp drop from the previous session after economic growth in top metals consumer China slowed to its weakest in 28 years.

Data released Monday showed Chinese economic growth slowing to 6.4% during the fourth quarter, the lowest in almost a decade and the third quarter in a row of slowing growth. For 2018 as a whole the country’s GDP expanded by 6.6%, which was the lowest rate since 1990.

Many experts believe conditions are likely to worsen before they get better.

“China remains an important determinant of how healthy the copper market is. While the government has extended fiscal and monetary stimulus, the support has so far been cautious,” Bank of America Merrill Lynch analysts said in a note. “In our view, this is unlikely to change for various reasons. Most notably, rebalancing the economy towards services/knowledge-intensive sectors makes many of the traditional stimulus tools less effective.”

In a note released on Monday, economists from CIBC said, while it is not expecting a recession in 2019, it expects “increasing trade barriers and tariffs to slow down global growth over the next 18 months, delaying our previously forecast 2020 recovery to 2021.”

The Canadian bank’s analysts adjusted their copper price forecast for 2019 to $2.75 per pound, down 10.6% from the previous prediction. For 2020 the bank expects copper to average $2.85, down more than 12%.

Benchmark copper on the London Metal Exchange ended down 1.2 percent at $5,981 a ton overnight, this after hitting a three-week high last week. Copper gained 1.19% last week to finish at $2.71 a pound, notching its second consecutive weekly gain. That was until China’s data dump yesterday.  The red metal opened for trading this morning at $2.67 a pound. Click on the chart below for up-to-the-minute pricing.

All of this just ahead of the expected slowdown of trading activity ahead of the Lunar New Year holiday, better known as the Chinese New Year, where everything comes to a halt in the run-up to and during the break. This year, the Lunar New Year break runs from February 4 to 8, but many factories close the week before.

In Other Copper News

This week, investors will be monitoring trade talks for signs of a resolution in the U.S.-China trade dispute, while concerns over the economic impact of the U.S. government shutdown and uncertainty over Brexit will also remain in focus.

While the ongoing government shutdown continues to delay some key U.S. economic reports, investors will get an update on U.S. existing home sales and jobless claims this week.

Recent media reports suggest both the U.S. and China are considering concessions ahead of next week’s visit to Washington by Chinese Vice Premier Liu He for talks aimed at resolving the trade standoff between the world’s two largest economies.

Here is a look at events this week likely to affect the markets, compiled by Investing.com.

Monday, January 21

China released data on fourth quarter growth, as well as figures on investment and industrial production.

U.S. financial markets were closed for the Martin Luther King Day Holiday.

Tuesday, January 22

The U.K. is to publish its latest employment report along with data on net lending.

The ZEW Institute is to publish a report on German economic sentiment.

Canada is to report on manufacturing sales.

The U.S. is to publish data on existing home sales.

Wednesday, January 23

New Zealand is to release inflation figures.

The Bank of Japan is to announce its benchmark interest rate and publish a rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.

Canada is to publish data on retail sales.

Thursday, January 24

Australia is to release its jobs report.

The euro zone is to release data on private sector business activity.

The European Central Bank is to announce its latest monetary policy decision.

The U.S. is to publish the weekly report on initial jobless claims.

Friday, January 25

The Ifo Institute is to report on German business climate.

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Jim Williams

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