China’s Unsteady Rebound Halts Copper Surge Said WSJ Print

WSJ Print Report.- The faltering rebound in China has caused copper prices to plummet to their lowest point in five months, putting a halt to the highly anticipated bull run in commodity markets. The benchmark futures contract for copper closed at $8,272 per metric ton on Friday, marking a 6.9% decline over the past month. This downturn abruptly ended a 35% surge in prices from July to January, which included the strongest January performance in twenty years.

Copper plays a crucial role in the construction and electronics industries, and its price often serves as an indicator of economic well-being. The earlier rally was fueled by expectations of a manufacturing and construction boom in China, the world’s largest consumer of commodities, after the country abandoned its zero-Covid policy.

However, recent data revealed that consumer prices in China experienced their slowest growth in two years in April, while new yuan loans issued by Chinese banks fell short of market expectations. Furthermore, retail sales, factory production, and fixed-asset investment also failed to meet forecasts.

Adding to the downward pressure on copper prices is the resolution of supply disruptions that contributed to the earlier surge.

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Concerns about a potential recession and a looming debt-ceiling crisis in the United States are also weighing on commodity prices across the board. Sudakshina Unnikrishnan, a commodities analyst at Standard Chartered Bank, noted, “We have negativity coming from all different sides.”

Meanwhile, copper supplies are beginning to increase. Chile and Peru, which together supply over a third of the world’s copper, exceeded last year’s combined production for the same month by 5% in March.

Additionally, the resolution of a royalty dispute between copper producer CMOC Group and the Democratic Republic of the Congo may facilitate exports and shift this year’s supply-demand balance from a deficit to a surplus, as predicted by TD Securities.

Notably, market indicators suggest an oversupply of copper. Physical copper is currently trading at the largest discount to futures prices since 2017. WSJ Print Reported.

Speculators have also turned bearish on the metal, with the volume of wagers on copper price declines in the futures and options market surpassing bullish bets by the widest margin since August of the previous year.

Quantitative traders utilizing trend-following computer algorithms have amassed a significant short position in copper over the past month, estimated at approximately 24% of their strategy’s maximum. This indicates their ability to sell even more if certain price triggers, slightly below the current prices, are breached.

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Consequently, shares of copper producers, which had been outperforming earlier this year, have seen declines. Freeport-McMoRan’s U.S.-listed shares have dropped by 6%, BHP’s Australian-listed shares have slipped by 3.2%, and Glencore’s London-listed shares have slumped by 21%. In contrast, the S&P 500 has risen by 9.2% this year.

Nonetheless, the long-term outlook for copper remains positive due to the ongoing transition away from fossil fuels. Electric vehicles, wind farms, and solar panels rely on more copper compared to their traditional counterparts. The growing demand for copper is expected to exacerbate the supply shortfall, consequently driving prices higher. Goldman Sachs analysts anticipate that copper will surpass its previous record high and reach $11,000 per metric ton by next year, while Citibank strategists predict a price of $15,000 by 2025. WSJ Print reported.

Despite copper’s current decline, some experts caution that it may not accurately signal a sharp downturn in global economic activity over the next six months. Luke Kawa, an asset-allocation strategist at UBS Asset Management, noted the mixed signals of this economic cycle, making it difficult to interpret the significance of copper prices.