Copper Price Prediction Amid China’s Slowed Economic Growth

Jan 18, 2022 12:19 PM ET
Copper Price Prediction Amid China’s Slowed Economic Growth
  • China recorded slowed economic growth in December.
  • Rise in copper inventories has eased supply concerns.
  • The value of the US dollar remains a key factor in copper price movements.

Copper price has pulled back from the October high reached in the past week as the market reacts to recent economic numbers from the leading consumer of industrial metals - China. Chinese data released on Monday showed slowed growth of the Chinese economy. Economic output rose b 4% in Q4’21 compared to 4.9% in the previous quarter on an annualized rate. Caution among home buyers and consumers contributed to the faltered growth. 

Granted, the global demand for consumer electronics and other home comforts in recent months has yielded a new record-high trade surplus. Data released on Friday showed that China’s surplus in December reached $94.5 billion; surpassing the prior record-high of $84.5 billion that was recorded in October. Besides, the country’s economic output rose by 8.1% compared to 2020. However, most of the recorded growth was in the year’s first half. 

Besides, the property crisis in China is far from over. County Garden Holdings Co, which is the largest developer in the country by way of contracted sales, reportedly failed in its efforts for a fundraiser. The firm had remained unhurt by the liquidity crunch. Copper is used in the construction sector. As such, crisis in the property sector of the metal’s largest consumer may remain a headwind in the near term.

Copper inventories

The rise in stockpiles has further contributed to the recorded pullback in copper price. In the past week, the red metal rallied as inventories in warehouses linked to the Shanghai Futures Exchange (ShFE) dropped close to its 2009 low at 29,182 tonnes. In LME-registered warehouses, stocks dropped from over 250,000 tonnes in August 2021 to 83,800 tonnes.

The subsequent supply concerns pushed copper price to $4.60 per pound; the highest it has been since late October. The situation has since improved with warehouses linked to LME recording a 6,550 tonne rise in inventories to 92,850 tonnes. 

US dollar

The value of the greenback is another undeniable driver of copper price. Similar to other commodities, the US dollar is inversely correlated to copper price. This is because a stronger dollar makes it more expensive for buyers holding other currencies. As such, a rise in the value of the currency creates a bearish environment for the commodity. 

The dollar index, which tracks the value of the US dollar against a basket of six major currencies, it holding steady above the crucial level of $95.00 after falling below it on Friday to a two-month low of $94.63. Even with the rebound, it is still below $95.50, which has been a steady support zone for the dollar for two months. In the ensuing sessions, the dollar will remain a key factor in copper price movements. 

Copper price prediction

Last week, the red metal rose to its highest level in close to three months at 4.46. Earlier on Monday, it erased most of the week’s gains by extending Friday’s losses to an intraday low of 4.38. It has since bounced off those lows to 4.43 as at 1819 GMT. 

On a four-hour chart, copper price is trading below the 25 and 50-day exponential moving averages. At the same time, it is above the long-term 200-day EMA.

In the near term, I expect the metal to trade within the horizontal channel whose formation began in Friday’s session. The range’s upper and lower borders will probably be along the 25-day EMA at 4.45 and Monday’s low of 4.38 respectively. 

A further decline past the channel’s lower border may place the support level at 4.36. On the flip side, if the bulls gather enough momentum to push copper price past the range’s upper border, it may rise to find resistance at 4.49.

The 4-hour copper price chart

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