Key points:
- Copper prices increase on expectations of stronger demand from China.
- LME copper rose 0.5% to $4.79 per pound while SHFE copper gained 0.3% to $5.32 per pound.
- Recent US dollar stability and rising inventories in China limited the upward momentum of copper.
Copper prices climbed on Wednesday, driven by optimism over increased demand from China, being the top copper consumer in the world. Three-month copper on the London Metal Exchange (LME) rose 0.5% to $4.79 per pound, while the most-traded July copper contract on the Shanghai Futures Exchange (SHFE) gained 0.3% to $5.32 per pound.
Picture: Copper prices rebounded as observed on the VT Markets app.
Boosters and catalysts for copper related industries
The recent measures by China to support its property sector have bolstered the outlook for copper demand. Megacities such as Shanghai have lowered the minimum downpayment ratios for homebuyers and relaxed some restrictions, which is expected to spur activity in the construction sector, a significant consumer of copper.
Adding to the positive sentiment, the International Monetary Fund (IMF) upgraded its forecast for the economic growth of China to 5% this year from an earlier projection of 4.6%, citing a strong first quarter. This improved outlook has fueled expectations of higher copper consumption.
Rally dampened by US Dollar and physical inventory
The US dollar remained steady on expectations that the Federal Reserve would not cut rates until later this year, ahead of crucial inflation readings. Such strengthening of the US dollar makes dollar-priced commodities like copper more expensive for holders of other currencies, which can dampen demand.
In addition, higher copper inventories in China, driven by strong output and soft physical demand, have also brought the market down. This situation reflects a cautious stance among traders despite the positive economic signals.
Risks and opportunities in the base metal market
Copper prices may continue to rise if further supportive measures are announced in China. Further, if the economic growth of China remains strong and property sector measures take effect, copper demand is likely to increase. However, physical inventory levels will need to be monitored closely as they could limit price gains.
