Singapore 19/09/2016 - China recently announced a number of improved macroeconomic data which brought back some optimism in the copper market, but market participants remained cautious over the metal’s near-term price direction and demand.
Encouraging macroeconomic data out of China has lifted the red metal out of its summer doldrums, Barclays Research said in a report on Sunday.
“China’s automobile production remains strong, domestic inventories are low, and several downstream indicators are flashing the green light for another rally,” the bank said.
The London Metal Exchange three-month copper price had risen to a four-week high of $4,794.50 per tonne on last Friday. It was, however, down $37 to $4,751 so far on Monday.
China announced a 10.6-percent year-on-year increase to its August retail sales, and an 8.1-percent year-on-year rise to its January-August fixed asset investment last week.
With the consumer sector of China’s economy expected to play a larger role in china’s copper consumption over time, improvement in the retail sector shows that for the moment, any possible economic malaise within China has not yet reached the consumer, the bank said.
Stabilisation in Chinese fixed asset investment - the most important indicator of future copper demand within China given the metal’s role in infrastructure investment such as electrical grid and real estate – is also an encouraging sign and lifts the prospects for demand, Barclays said, adding that Chinese real estate sales also continues to look strong, improving 19.8 percent year-on-year in August.
Furthermore, China’s year-to-August automotive production rose ten percent year-on-year. The automotive sector holds particular significance for the copper market, as it not only is a growing sector of real demand for copper – estimated at 5-7 percent of China’s overall demand – but also acts as an accurate read on China’s spot macroeconomic health, the bank added.
But it noted that a surprise rate hike from the September US Federal Reserve meeting on September 20-21 could deflate any bounce from the positive Chinese data.
“Putting it all together, the signs for the copper market look good, but we feel there is a catch,” it said.
Against market expectations of no further US policy tightening in September, Barclays’ economists are calling for a rate hike at this meeting, in which if its prediction is proven correct, is likely to lead to a stronger US dollar that will be negative for copper.
“Copper skies are brightening, but the chance for storms has not yet passed,” the bank said.
Shanghai Metals Market is also cautious despite SHFE copper prices rising on Monday after Chinese investors returned from Mid-Autumn festival holidays last Thursday and Friday.
“The upside for SHFE base metals is yet to be tested,” the Chinese metals research firm said in a Monday report. SHFE base metals remain checked by resistance ahead of US rate hike decisions, it added.
The most active SHFE November copper contract rose 460 yuan to 37,190 yuan so far on Monday amid short-covering and position-squaring.
Chinese market participants have also downplayed domestic demand so far going into the traditional September-October peak season for Chinese demand.
“Judging from transaction levels, there is no obvious improvement to Chinese copper demand so far in the peak season. Users have exited the market after completing their inventory stock-up before the mid-autumn festival holidays,” China’s Mailyard Futures said in a report on Monday.
At the moment, it seems difficult for the copper price to rise due to peak season demand and more positive factors are needed to drive copper prices higher, the Chinese futures brokerage added.
Copper stocks in Shanghai Futures Exchange-listed warehouses have declined for a fifth straight week last week but Chinese sources polled by FastMarkets did not believe the drop is due to improved demand - the decline is largely seen as due to an increase in Chinese copper exports and temporary output cuts owing to maintenances and shutdowns due to the G20 Summit in Hangzhou in eary September.
“The market does seem a bit more optimistic about copper recently and there are more longs in the market now. Demand is slightly better but we wouldn’t say there is a very obvious improvement in demand so far,” a Shanghai-based trader said.