Copper recovered on Tuesday after traders and funds reversed bets on a decline in the price of the metal, after a coronavirus outbreak.
In the London Metal Exchange, copper rose 1.7% to $5,618 per ton. Metal prices had fallen on Monday to five-month lows pf 5,523, which means a slump of almost 13% since January 16.
The nervousness about the coronavirus epidemic in China to have diminished moderately. PBOC, the Chinese central bank, flooded the economy with liquidity, cut some key loan rates, and said it is determined to stabilize markets and regain confidence. With active stimulus measures, the Xi Jinping government has released a strong message that it will do everything necessary to support its markets. Moreover, also to prevent a further slowdown in growth.
The price of copper is quite sensitive to economic events in China. This is because the Asian nation is the largest consumer of raw materials in the world. The outbreak of the Wuhan virus created speculation that the economy would only grow 4% in the first quarter of 2020. Market prices fell two tenths below than what was expected at the end of 2019. It was a rather adverse event for industrial metals.
Will the prices of metal grow?
Although the feeling on the market has begun to improve, it is too early to celebrate yet. The epidemic is still not contained. It infected more than 24,500 people across the world so far. In the coming days and weeks, it is essential to monitor the evolution of the health crisis in China closely. If the cases of Coronavirus continue to rise and do not reach a peak soon, copper can resume falls. And then plunge to levels not seen since 2016.
Alternatively, if the Chinese health authorities manage to stop the spread of the disease, there is room for a strong rally in the price of copper due to its substantial degree of overselling. From the second half of January until today, the price of copper has accumulated a fall close to 11%.
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Analysts say that if the bullish trend continues, the price of the reddish metal could be directed towards $5800.
On the contrary, however, Benedikt Sobotka, the executive president of the Eurasian Resources Group, expects copper profits to be temporary. He states that the demand for the copper will face headwinds even when the impact of Coronavirus has gone away.
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