Copper, better known as Dr. Copper, is a crucial barometer for the global economic health. Since hitting its all-time high in May 2024, COMEX copper futures have since dropped by about 17%. Besides, the rallying fueled by the Chinese stimulus package in late September, the red metal is down by about 10%.
Copper prices are set to benefit from the Chinese government’s stimulus measures in the long run. However, the fading of the support’s cheer, coupled with disappointing press briefings post the PBoC’s announcement has seen the red metal erase some of its September gains. Besides, a stronger US dollar has made it less attractive for buyers holding foreign currencies. In the short term, economic data from the US and China, the two leading economies in the world, will shape the metal’s price path.
China’s economy
In late September, copper prices rallied to a four-month high on the back of the jumbo-sized stimulus package announced by the People’s Bank of China (PBoC). The country’s real estate and industrial sectors were at the centre of the stipulated measures. The announcement has investors optimistic of the surge in copper demand owing to its vast uses in construction, industrial, and electrical works.
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However, with the fading of the package’s cheer and disappointment over the scale of the government’s support, copper price has erased some of those gains. Indeed, it has recorded weekly losses for the third consecutive week.
Following PBoC Governor Pan Gongsheng’s announcement in late September, press briefings by the country’s Minister of Finance and Chairman of the National Development and Reform Commission, Zheng Shanjie have fallen short of investors’ expectations.
On Saturday, China’s Finance Minister, Lan Fo’an promised additional support to the struggling property sector. He further hinted at the government increasing debt issuance to boost the economy. In the press briefing, he indicated that the measures will allow local governments to use special bonds to acquire the unsold homes.
However, he did not give an exact amount. Besides, he failed to provide a time frame when stating that the “central government still has quite large room to borrow and increase the deficit”. It is these missing pieces that have underwhelmed investors; easing copper price’s upward momentum.
This disappointment appears to continue as the market reacts to the latest press briefing held on Thursday. The country’s housing ministry, lead by the mister of housing and urban-rural development, Ni Hong stated that the government will expand its whitelist of housing projects and hasten bank lending for the incompleted developments to 4 trillion yuan by end of 2024.
He noted that loans totaling to 2.23 trillion yuan have already been approved to whitelisted developers. The initiative, which was introduced in January 2024, allows local governments to recommend unfinished residential projects for speedier bank loans. With the new measures, all commercial real estate projects are eligible for the program.
Even with the announced measures, the briefing appears to be yet another underwhelming stimulus-related announcement. The housing ministry’s detailing was more of fine-tuning the current policies. Besides, the translation of the stimulus measures into actual real estate investments and projects is expected to take time.
With China being a key importer of copper and other industrial metals, this lack of conviction will likely continue to limit copper price’s upside potential. In the short term, positive economic data in the form of the country’s GDP and industrial production may improve the consumer confidence.
US dollar
In addition to concerns over the Chinese economy and global copper demand, a stronger US dollar is weighing on the red metal. As is the case with other dollar-priced assets, a surge in the value of the greenback makes the commodity more expensive for buyers holding foreign currencies.
On Thursday, the dollar index extended its previous gains to an 11-week high after US retail sales came in higher than expected. This comes two weeks after a positive September jobs report. These figures have confirmed the resilience of the country’s economy as investors increase bets for a lesser interest rate cut by the Fed. While a strong US dollar is weighing on copper prices, signs of a stabilizing economy are easing demand concerns.
Copper price analysis
The daily chart shows that the copper price peaked at $4.7 in September as hopes of Chinese stimulus rose. In most periods, assets tend to rally after a major event and then resume the downtrend after it happens. Chinese stock indices like the Hang Seng and CSI 100 have all plunged in the past few days.
Copper has dropped below the first support level of the Andrew’s pitchfork tool and the 38.2% Fibonacci Retracement point at $4.53. On the positive side, it has remained above the 50-day and 200-day Exponential Moving Averages (EMA).
A closer look shows that it has formed a morning star pattern, a popular bullish sign. Therefore, there are chances that it will bounce back as investors target the key resistance point at $4.72, its highest level this month. This means that it may bounce back by about 7% from the current level.
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