Copper Prices – Drop to Lowest Price Since November 2020
The Monthly Copper Metals Index (MMI) fell 10.69% between June and July. The copper price trend continues to be bearish.
Copper price action continues to show massive downtrends and signals further declines. The continued breakdown of short-term trading ranges promotes a volatile market. This exposes industrial buyers to the risk of fluctuations in inventory value.
Surge in COVID cases puts China’s recovery in limbo, hits copper prices
The highly infectious BA.5.2 subvariant of the coronavirus arrived in China as Beijing issued its first vaccine mandate. Meanwhile, Shanghai’s covid cases hit their highest level since late May. The city continues to struggle with the omicron variant. Since Shanghai emerged from lockdown, China has turned to targeted quarantines. The latest rise in cases will once again test China’s resolve to zero COVID.
So far, China has resisted another large-scale lockdown. The apparent hesitation suggests a subtle shift in China’s strategy. However, another lockdown could remain on the horizon if the number of infections exceeds a certain threshold. The latest lockdown has caused major damage to the Chinese economy. The Caixin Manufacturing Index PMI contracted to a 26-month low in April. Additionally, a recent Bloomberg report suggests that China’s GDP likely contracted in the second quarter. This is contrary to any figure the CCP will release.
As copper prices peaked in March, weak demand from China triggered the start of the downward price trend. The impact of the lockdowns in China started to be felt in the second half of April. The decline in prices continued after a brief rebound. However, it failed to surpass its previous high as Shanghai emerged from lockdowns. However, the bearish emphasis has displaced growing fears of an economic recession in the West. So far, the Chinese recovery has failed to reverse the downward trend. However, any reversal could accelerate the current free fall in prices which are currently nearly 30% below their March 7 high.
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As China considers its next steps to manage COVID, it continues to look to infrastructure to meet its growth targets. According to a recent Reuters report, China will set up a public infrastructure investment fund totaling nearly $75 billion in the third quarter. His latest measures follow those of President Xi at the end of April commitment for an “all-out” reinforcement of the construction of infrastructures. While the projects are likely to be large-scale, Xi emphasized “science and technology” infrastructure. China is also planning to develop its digital economy. To finance its ambitions, the Chinese cabinet announced that it would increase the credit quota for political banks by 120 billion dollars. It will also issue nearly $45 billion in financial bonds.
Future plans follow already significant investments in the first half. According to data from the National Bureau of Statistics, investment in infrastructure in the first five months of the year increased by 6.7% compared to 2021. Total planned investment in newly launched projects increased by 23 .3% over the same period.
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Will China’s infrastructure help stop fluctuations in copper prices?
Source: St. Louis Fed
As China’s stimulus measures extend beyond infrastructure, infrastructure spending is emerging as the priority. This is also not the first time that China has used this strategy. In 2008, in the midst of the Great Recession, China’s State Council announced a $586 billion (4 trillion yuan) stimulus package in November 2008. Although the plan increased debt, it also boosted growth after a sharp decline. Copper prices also took notice as the downtrend bottomed out in December.
However, China’s efforts may not have the same effect in 2022. Projects announced so far will certainly benefit copper, but it remains unclear how total spending will compare to 2008. China is much higher than it was in 2008. This, in addition to its property sector and the damage already done by the zero-COVID approach, leaves China in a much weaker position. China’s current covid restrictions also pose a risk. Even if they are not enough for city-wide shutdowns, they come at the expense of a larger recovery and remain disruptive to any business or project. Whether China can manage its vulnerabilities and finance and execute enough projects to offset the weight of the global economic slowdown seems, at this stage, unlikely.
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Real metal prices and trends
- The LME three-month primary copper price fell 13.49% month-on-month.
- Chinese copper bars fell 14.06% to $9,358 per metric ton. Chinese copper scrap fell 14.25%,
- US copper producers’ 110 and 122 grades were down 10.96%.