While Chinese demand has not necessarily “recovered,” markets appear optimistic, and copper prices are off to a strong start of 2023
managed to break prior highs after experiencing several weeks of pullback. Prices managed to hit short-term demand zones, which typically induce bullish strength. This confirmed the recently-formed uptrend in the copper market, ending the macro downtrend that started earlier in 2022. New data indicates the start of a bullish market, increasing the potential for further upside price movement. However, buyers should not rule out pullbacks, as prices remain historically high.
article, Caroline Bain, commodities economist at Capital Economics, noted “we are expecting a rapid rebound in China’s economy.” Bain is not alone in her sentiment. Already, during the first two weeks of the year, copper prices jumped over 7%. This brings them to their highest level since June.While numbers appear to have peaked in some areas, China’s latest COVID wave is not over.
According to the China Construction Machinery Association, excavator sales in China, a proxy for construction activity, saw adecline. China’s aging population will add yet another layer of difficulty to the recovery as many wonder who else is left to build for in the future? The construction industry has historically served as one of the largest consumers of China’s overall copper demand.
Also, slowing inflation numbers continued to weigh on the U.S. dollar index. While some hoped for a more aggressive fall, thefell 0.1% in December, marking the sixth consecutive month of declines. For markets, this likely means the Federal Reserve will continue on its current path after it slowed the pace of interest rate hikes last month. The Fed’s next meeting will be from January 31 to February 1. This could result in an even smaller increase after the 50 basis point increase in December.
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