Copper Retreats After 6.3% Advancement, But Will it Stick?

Talking Points:

• Copper advanced 6.3% last week as China expanded its stimulus measures
• The metal has since retreated as Copper imports reportedly fell by 10.3% in January
• Copper trades below resistance area which is situated near $2.63

Responding to global cues, copper advanced 6.3% last week before retreating on Monday, to trade as low as $2.559 per pound. In topping the news, China’s trade statistics, manufacturing data and central bank policy differentiation bore the greatest influence on market prices. Looking ahead, whether or not copper continues its correction remains to be debated as new International Copper Study Group (ICSG) data indicates that the market may be tighter than initially perceived.

After opening last week with a moment of indecision, investors definitively pushed copper prices higher throughout the week in conjunction with rising fuel prices and the extension of China’s stimulus measures. On February 4th, the People’s Bank of China lowered its reserve-requirement ratio for banks by a half of a percentage point. The decision provided temporary support for copper as investors viewed the move as a way to increase liquidity for lending and stimulate growth.

Prices however, were moderated on Thursday following HSBC’s composite PMI report; the index, at its weakest level in 8 months, slowed from 51.4 in December to 51.0 in January. Prices than fully fell in the ensuing days in accordance with disappointing trade data.

Reported by the General Administration of Customs, gross trade (measured in USD) was down 10.9% in January of 2015. When compared to the same month in 2013 exports were lagging by 3.3% while imports were down 19.9%. Furthermore, as a portion of total trade, imports of copper ores and concentrates fell by 10.3% in volume and 17.0% in value.

While the preceding comments support speculation that supply growth is outpacing demand, studies conducted by the ICSG indicate that in the first 10 months of 2014 production was actually in a deficit and usage was on the rise. Seasonally adjusted, the production shortfall was equal to 532K tonnes— 373K tonnes greater than the deficit during the same time span in 2013. Simultaneously, copper usage increased by 11% year-over-year.

Copper 4H Chart

Chart Created by Rob Pasche Using MarketScope 2.0