Copper Price Bounces as China Provides Much Needed Support

Copper price continued its steady recovery after the strong economic numbers from China, its biggest consumer. It spiked to a high of $4.12, the highest point since February 23rd. Other commodities with China’s exposure like silver and iron ore also drifted upwards.

China recovery gains steam

Copper is an important metal that is used widely in the manufacturing industry. China, the second-biggest economy by GDP, is its biggest buyer. Therefore, in most cases, copper tend to mirror the performance of the country’s economy.

As a result, copper price jumped sharply on Wednesday after China published strong economic numbers. Data by Caixin, an independent company, showed that the country’s manufacturing PMI jumped to 52.6 in February, the biggest increase in a decade. A PMI of 50 and above is a positive sign.

As I wrote in this report, this is an important report since it provides key data after China ended its Covid-19 restrictions. As such, there is a likelihood that the country’s economy will continue doing well in the coming months.

Another catalyst for copper prices is the upcoming Nationa People’s Congress which will set the agenda for the year. The Communist Party of China will set goals for what to achieve this year and provide stimulus to attain that. Analysts expect that the government’s GDP target for the year will come in at 5%, which is a good figure after it expanded by 3% in 2022.

Still, early data shows that export demand has been modestly weak in the past few months. At the same time, the important real estate industry is still reeling from the collapse of Evergrande and other companies.

Copper is also being driven by the rising supply deficits as the biggest mines go through challenges. Demand is set to more than double by 2035 while deficit is expected to high in the next few years. Therefore, as we saw with palladium, higher deficits will likely lead to higher prices.

Copper price forecast

Copper chart by TradingView

The 1D chart shows that copper has risen in the past three straight days. This recovery happened when copper moved to the lower side of the ascending channel shown in black. It is stuck at the 50% Fibonacci Retracement level and above the key support level at $3.78, the highest point on August 26. It has moved above the 50-day and 100-day moving averages.

Therefore, copper will likely continue rising as buyers target the upper side of the channel at $4.35. A drop below the support at $3.96 will invalidate the bullish view and send signals that there are still more sellers in the market. This view is in line with my last week’s copper forecast.

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