Copper Rises to 13-Month Highs on Favorable Supply-Demand Dynamics

  • Copper
    (${instrument.percentChange}%)

Copper Analysis

This week's data showed that China's factory activity expanded for the first time in half a year, as March Manufacturing PMI came in at 50.8. This raises optimism around China's economic activity, which is a key consumer and producer of Copper. At the same time, manufacturing data from the US supported the strong economy narrative, as ISM PMI printed above 50 for the first time in more than a year.

The news helped Copper to thirteen-month highs, extending its recent rally, which has been fueled by improving supply-demand dynamics. Optimism around China and the US, boost demand prospects, amidst the supportive green energy transition and the rebound of the chip industry that is largely fueled by the AI revolution.

The market has tightened unexpectedly after the closure of First Quantum's Cobre Panama mine. This led the firm to forecast a 40% production decrease this year [1], while more key miners have slashed their outlook, like Anglo American [2]. Adding to the supply concerns, Reuters recently reported that Chinese smelters have agreed to cut output. [3]

This tightening of the market can lead to even higher prices, as Copper now closes is in on the 2023 highs (4.356). However, we are still a bit cautious around further gains towards and beyond 4.579.

China's post-pandemic recovery remains bumpy and its crucial property sector in distress, with Vanke posting a profit decline last year, according to this week's results [4]. The US economy is outperforming but inflation shows stickiness and the Fed has adopted a conservative approach to removing monetary restraint.

These factors, along with the overbought technical levels as shows by the RSI, can contain the upside and put pressure on Copper. As such, a pullback to the EMA200 (3.980-65) would not be surprising. Strong catalyst would be needed though, for daily closes that would pause the upside bias.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 03 Apr 2024 https://www.first-quantum.com/English/announcements/announcements-details/2024/First-Quantum-Minerals-Reports-Fourth-Quarter-and-Year-End-2023-Results/default.aspx

2

Retrieved 03 Apr 2024 https://www.angloamerican.com/media/press-releases/2023/08-12-2023

3

Retrieved 03 Apr 2024 https://www.reuters.com/markets/commodities/chinas-top-copper-smelters-agree-production-cut-amid-raw-material-tightness-2024-03-13/

4

Retrieved 29 May 2024 https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0327/2024032702515.pdf

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