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Copper Price Outlook: Prices Supported by Outsized Market Imbalances

Copper Price Outlook: Prices Supported by Outsized Market Imbalances

Thomas Westwater, Analyst

Copper prices, Market Imbalances, COVID-19 – Talking Points

  • Outsized supply and demand imbalances look to support copper prices
  • LME copper stockpiles drop to lowest level since 2007
  • Chinese copper imports set two consecutive record-breaking months

Copper prices gyrated Thursday, along with gold and the US Dollar, following remarks from Fed Chair Powell regarding changes to the Fed’s monetary policy framework. The red metal has made notable advances since plunging to a multi-year low earlier this year, in line with weakness seen across other assets — which typically act as a barometer for economic activity — such as lumber and oil. Copper futures are now trading in green territory Wednesday afternoon following the close of the New York trading session where US equities saw a volatile session.

Copper Futures 5-Min Price Chart

Copper Price Chart

Chart created in TradingView by Thomas Westwater

The recent bounce back in economic activity across the globe helped drive copper to a multi-year high last week as policies to fight the COVID pandemic continue to scale back. And underlying supply and demand imbalances appear bullish for a continued run higher. Just last week, the London Metals Exchange stockpiles dropped to the lowest level since 2007, sending copper futures above $3.00 per lb., the highest price point since June of 2018. The current LME warehouse level for copper stands at 92,025 tonnes, just above the 2007 low.

Copper vs LME Copper Warehouse Storage

Copper vs LME Copper Storage

China, the world’s largest importer of copper, is a major variable on the demand side for copper. Chinese imports have now recorded two consecutive months of copper imports, with just over 762k metric tons of unwrought copper imported for July according to China’s General Administration of Customs. Arbitrage opportunities helped propel this figure on top of increasing factory production in the country as massive stimulus efforts in the country drive construction and infrastructure.

Copper vs Chinese Copper Imports

Copper vs chinese copper imports chart

Along with Chinese demand, added supply side issues resulting from the COVID pandemic has led to many mining operations in copper producing countries to shutter. Even with policy restrictions lifting in many copper producing nations, supply shortfalls will likely persist as mining operations can take weeks and sometimes months to return to full capacity. While market imbalances are supportive of prices currently, it will be key to continue to observe the global economic recovery, alongside the ongoing supply and demand imbalances to gauge a probable direction for the industrial metal.

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

Contact and follow Thomas on Twitter @FxWestwater

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

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