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Copper Forecast: More Upside for Red Metal on Upgraded Global GDP, US Stimulus?

Copper Forecast: More Upside for Red Metal on Upgraded Global GDP, US Stimulus?

Thomas Westwater, Analyst

Copper, China Demand, Chile Supply shock, Biden Stimulus – Talking Points

  • Copper seen as a vital industrial metal for ongoing stimulus efforts
  • IMF’s updated WEO supports growth-fueled economic narrative
  • Prices may move slightly lower to retest a triangle’s upper bound

Copper prices are on the up once more following a small pullback in March when a broadly stronger US Dollar weighed on the industrial commodity. The red metal is near 3% higher since the start of April as Greenback strength eased along with recently high-flying Treasury yields. Looking ahead, the global narrative for copper appears as bullish as ever.

Copper LME 3-Month Rolling Forward vs US Dollar (DXY)

copper vs lme 3-month

While copper benefits from rising global economic outputs, this month’s swing higher appears to stem from Chile – the global leader in exporting the red metal – tightening border restrictions due to a rise in Covid cases. The move by the Chilean government came after the country reported nearly 8k new daily cases last week. In turn, copper prices climbed, with commodity analysts expecting a possible supply shock from the event.

The border restrictions are only one piece of the broader narrative helping to push copper higher. Earlier this week an updated World Economic Outlook (WEO) from the International Monetary Fund (IMF) showed upgraded GDP targets for the global economy. Two regions in the updated WEO bode well for copper’s outlook: the United States and Emerging Asia.

Emerging Asia is set to grow by a solid 8.6% in 2021, according to the IMF, up 0.4% from the January 2021 WEO. Asia – China in particular—is a key demand-side driver for prices. In fact, China is the largest copper importer in the world, and in 2020, almost 7 million tonnes flowed into the economic powerhouse. While some demand last year went to China’s strategic stockpile, spurred by low prices, the country will likely remain to be a driving factor.

China unwrought copper imports

The United States is set to use more copper as the Biden administration's agenda shifts to focus on infrastructure to drive economic growth and job gains. President Joe Biden’s American Jobs Plan aims to spend more than $2 trillion over the next eight years. According to the White House fact sheet, over $600 billion will go to transportation infrastructure, including $174 billion in electric vehicles and $115 in bridges, roads, and highways.

Biden’s plan still has a question mark hanging over the price tag with a thin margin in Congress, and so far, stiff GOP resistance. However, some form of the package will likely pass this year, but likely with a lower price in a concession to Republicans. Regardless, a slimmed-down version will bode well for copper as the infrastructure-focused industry is heavily reliant on the red metal. For example, electric vehicles use two to three times the amount of copper versus conventional autos, according to industry experts.

Copper Technical Outlook

Copper’s technical posture appears bullish, but a short-term move lower would be unsurprising considering the latest swing higher appears to be cooling off. Prices pulled back after a short breakout from a Symmetrical Triangle pattern’s upper bound. A retracement to test the defeated resistance may be on the cards. The 20-day Simple Moving Average (SMA) appears to be providing support as of late, now directly below the current price level.

Copper 8-Hour Chart

copper price chart

Chart created with TradingView

Copper TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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