Copper, also known as Dr. Copper is an important barometer of global economic health. COMEX Copper Futures have fallen by 17% since May 2024 when they reached their all-time high. The red metal has fallen by around 10% despite the recent rallying in China sparked by its stimulus package.
The Chinese government’s stimulus will benefit copper prices in the long term. The red metal has lost some of its gains in September due to the waning of the cheer of support, as well as disappointing press conferences following the PBoC announcement. A stronger US dollar also makes it less appealing for foreign currency buyers. The price of metals will be influenced by the economic data coming from the US and China. These are the two largest economies in the World.
China’s economy
The People’s Bank of China’s (PBoC) massive stimulus package helped copper prices reach a four-month-high in late September. Measures were aimed at China’s industrial and real estate sectors. Investors are optimistic about the demand for copper, given its wide range of uses in electrical, industrial and construction works.
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Copper price, however, has lost some of these gains due to the disappointment of the government over its support and the dissipation of the cheer generated by the package. It has actually recorded losses for a third consecutive weekly.
Investors were disappointed by Zheng Shanjie’s press conference after Pan Gongsheng, the Governor of the PBoC, announced his announcement late in September.
Lan Fo’an, China’s finance minister, promised on Saturday to provide additional support for the struggling real estate sector. He also hinted that the government would increase debt issuance in order to boost the economy. He said in the press conference that local governments will be able to purchase unsold houses using special bonds.
He did not provide an exact figure. He also failed to give a timeline when he stated that “the central government has a large amount of room to borrow money and increase its deficit”. These missing pieces have disappointed investors, reducing the upward momentum of copper prices.
The market’s reaction to the most recent press conference held on Thursday confirms this disappointment. Ni Hong, the country’s Housing Ministry, led by the Minister of Housing and Urban-Rural Development, stated that the government would expand its whitelist for housing projects, and accelerate bank lending to the incompleted development up to 4 trillion yuan at the end of 2024.
The loan total of 2.23 trillion Yuan has already been approved for white-listed developers. Introduced in January 2024 the initiative allows local governments recommend unfinished residential projects for faster bank loans. All commercial real estate projects will be eligible for the new program.
The briefing is not a very impressive announcement, even with the measures announced. The housing ministry was more concerned with fine-tuning current policies. The translation of stimulus measures into real estate projects and investments is also expected to take some time.
This lack of confidence will continue to limit the upside potential of copper prices, as China is a major importer of industrial metals and copper. Positive economic data, such as the GDP and industrial production of the country, may boost consumer confidence in the short-term.
US dollar
A stronger US dollar, in addition to concerns about the Chinese economy and the global demand for copper, is also weighing down on the red metal. The greenback’s rise in value makes red metal more expensive to buyers who hold foreign currencies.
The dollar index reached a new 11-week high on Thursday after US retail sales were higher than expected. The dollar index has risen two weeks following a positive jobs report for September. These figures confirm the resilience of the economy, as investors bet on a smaller interest rate cut from the Fed. A strong US dollar weighs on copper prices but signs of an improving economy ease demand concerns.
Copper Price Analysis
On the daily chart, it is clear that copper prices peaked in September at $4.7 as expectations of Chinese stimulus grew. Assets tend to rise after major events and then fall again afterward. In the last few days, Chinese stock indices such as the Hang Seng and CSI 100 have all plummeted.
The copper price has fallen below the Fibonacci retracement level at 38.2% and the first support of Andrew’s pitchfork. It is currently $4.53. Positively, it is still above the 200-day and 50-day Exponential moving averages (EMA).
It has formed the morning star pattern. This is a bullish signal. Investors will likely target $4.72 as the main resistance level, which is its highest point this month. It may rebound by approximately 7%.
This post Copper Price Forecast: Rebound cannot be ruled Out may be modified as new information becomes available.
