Mon, January 30, 2023

The US-China conflict impacts on copper prices

US-China tensions impact on Copper price

The dynamics of the copper market continues to have a focus on the risk of a decrease in the supply of metal in the main producing countries. It has led to a drop in inventories available in metal exchanges. 

On the other hand, a weaker US dollar makes copper more attractive for buyers using other currencies. 

Three-month copper on the LME gained 0.3% to reach $6,431.5 a tonne. The metal lost 0.5% last week. It was the first weekly decline in copper prices. The drop was also related to the increase in tension between the US and China. 

Brent Cook, a co-editor of Newsletter Exploration Insights, stated that the declining copper prices now reflect a slowing global economy. 

Copper supply is sinking 

The US and China have mutually requested the closure of consular offices. The situation has boosted risk aversion, deteriorating the price of equity assets. Still, only a limited and short-term adjustment is expected.

The risk of a drop in the supply of the metal in the main producing countries has led to a drop in inventories available in metal exchanges. 

Cochilco, the Chilean Copper Commission, warned in recent days that the increase in coronavirus cases in the United States and Europe was observed. If new measures led to severe confinement, the current cycle of global economic recession would deepen, deteriorating further expectations of a drop in copper demand forecast for this year.

Resumption of activity

On the other hand, during July, the manufacturing sector in Europe and the United States expanded. This broke the decreasing trend over the last several months.

In July, business activity (manufacturing and non-manufacturing) in the US increased to a maximum of six months. However, companies reported a decline in new orders. This was due to the resurgence of new cases of Covid-19 across the country, which affected demand.

Also, during July, the activity of the manufacturing sector in Europe, measured by the PMI index, returned to a place of over 50 points, a limit that separates the expansion from the recession, for the first time since January 2019.

Cochilco reported that investors continued trading copper futures contracts on the London Metal Exchange. The expectations of metal shortages still dominate the market. 

Analysts believe the sentiment in copper could turn bullish. Matt Badiali, a senior research analyst at Banyan Hill Research, stated that to meet the projected demand from the electric-vehicle-industry, the world will need to produce 5 million metric tons of copper per month by 2030, which is around 2.5 times more than it will provide in 2020.

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