Copper price rose for two consecutive days as the market reacted to the recent Chinese stimulus and central bank actions.
With China’s National Day holidays, the market is experiencing lower trading volumes. Even so, demand dynamics remain the key driver of copper prices. Copper has an array of uses in the industrial, electrical, and construction sectors.
On Monday, Comex copper futures rallied to $4.79 a pound; a level last recorded on 29th May. With the rising optimism in the market, the bulls are eyeing the record-high hit in mid-May at $5.20.
Granted, tension in the Middle East has continued to underpin the US dollar due to its safe haven status. Similar to other dollar-priced assets, a stronger greenback makes the red metal more expensive for buyers holding foreign currencies.
Copper demand dynamics
US manufacturing sector
In the US, the world’s top economy, recent figures indicated continued contraction of its manufacturing sector. Data released on Tuesday by the Institute of Supply Management (ISM) showed that its manufacturing PMI remained unchanged at 47.2 in September. A figure below 50 usually indicated contraction in the sector.
Even so, the input prices dropped to a 9-month low with the measure for prices paid by manufacturers declining from 54.0 in August to 48.3 in September. At the same time, new orders rose from 44.6 in August to 46.1 in September.
Coupled with the reduced interest rates, investors are optimistic that manufacturing activity in the country will improve in coming months. The market expects the Federal Reserve to deliver two more rate cuts in the last two months of 2024.
Chinese economy
Optimism over the recovery of the Chinese economy is even higher; an aspect that has offered support to copper price in recent sessions. A week ago, the People’s Bank of China (PBoC) delivered an aggressive stimulus package meant to revive the struggling economy. In fact, analysts have termed it as the most significant stimulus package by the central bank since the COVID-19 pandemic.
The measures include cutting the reserve requirement ratios, which is the amount of cash reverse banks should have, by 50 basis points. The move is intended to free up about 1 trillion yuan for further lending. Besides, in an effort to boost the ailing real estate sector, PBoC announced the reduction of the average interest rates for existing mortgages by 50 basis points. For second homes, the minimum down payment requirement was cut from 25% to 15%.
Days later, authorities in several major cities within the Asian country have made similar moves. The Guangzhou city government has lifted all restrictions on home purchases. At the same time, Shanghai’s government reduced the tax-paying period required for migrant families to own a home across certain districts. Shenzhen’s administration also eased the existing home-buying restrictions which had single individuals and families limited to buying one and two homes respectively.
It may take time for these measures to bear fruits. However, the market sentiment is expected to improve with demand for homes increasing and mortgage loan growth expanding. As the property sector recovers, the demand for copper, which is widely used in construction, is set to rise.
In fact, optimism over the Chinese economy has seen the share price of major copper companies surge in recent sessions. For instance, Rio Tinto, the world’s largest mining company, rose to a level last recorded in late May on Monday before pulling back. Similarly, BHP Group’s share price rallying to January levels.
Copper price analysis
The daily chart shows that the price of copper bottomed at $3.95 in August, and then staged a strong comeback, reaching a high of $4.67, its highest point in weeks after China’s stimulus measures.
Copper has remained above the 50-day and 200-day Exponential Moving Averages (EMA), meaning that bulls are in control. It has also risen above the 38.2% Fibonacci Retracement level while oscillators have pointed upwards.
Therefore, technicals point to more gains in the near term. If this happens, copper will likely surge and retest the year-to-date high of $5.17, which is about 10.78% above the current level.
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