Copper Prices May Recover on China’s GDP After Virus-Induced Selloff.
Copper Prices Talking Points:
- Copper prices remain at near multi-year lows amid Coronavirus pandemic
- The secular downward trend in the Chinese economy may reverse in 2021
- IMF forecasts the strongest growth for China since 2011
Copper prices still struggle because the cornerstone industrial metal collapses under the economic pressure from the Cornonavirus pandemic. The value for Copper is down nearly 18 % year-to-date, and a huge 50 % down from highs back in 2011. However, a recent recovery may reflect growing confidence for the world to stage an economic comeback, particularly in China.
Copper Futures (Monthly Chart).
Chart data as of the 16/04/20 from https://www.tradingview.com
Fundamental Snapshot.
As a fundamental industrial metal, Copper is particularly susceptible to secular trends to demand-sided drivers within the economy, like construction, particularly in high-growth economies, like China. Given that, the slowdown in the Chinese economic activity, measured through GDP, helps to illustrate the downward trend from the 2011 highs in Copper.
Chinese Economic Activity Measured by GDP Versus Copper.
The Path Forward for Copper.
While the present macro landscape appears dreary for Copper given the uncertainty regarding the continued Coronavirus pandemic, there could also be a chance for upward movement. The economic impacts from the virus will likely succumb as major economies around the world begin to reopen over the next few months. This might help push copper prices up.
A recent economic outlook report from the IMF provides the latest projections for the economic recovery for this year and 2021. consistent with the report released on Tuesday, economic activity in China will reduce sharply this year, with GDP growth expected at 1.2 %. However, the 2021 projections show a robust recovery, with growth rising to 9.2 %.
IMF Projections for Economic Growth.
Source: IMF
Consequently, should the IMF’s projections come to pass, growth in China would rise to levels of the highs not seen since 2011 when the country recorded a 9.5 percent rate of growth. Given the strong correlation between growth in China and therefore the price of copper, it might be apt to assume that Copper will respect the prior correlation.
Copper Futures (Chart From the Last 24 Hours).
Chart data as of the 16/04/20 from https://www.tradingview.com
Furthermore, investors may have already begun to value in the previously mentioned GDP outlook for China. While copper remains lower by nearly 18 % this year, the metal has bounced 16.68 % since the 19th of March multi-year low of 1.9671 USD. Further fluctuations will likely reflect the confidence, or lack of, the ability for China and therefore the world to stage an economic recovery. Finally, a suspected push for an additional stimulus bill from the US, this one targeting infrastructure, could also push Copper higher, but no specifics are released so far.
