Copper price forecast: hangs on a thread as China woes mount

Copper price drifted downwards to an important support level after the latest economic numbers from China. The metal dropped to a low of $3.8285 on Tuesday, much lower than the year-to-date high of $4.

China demand concerns

Dr. Copper and other industrial commodities came under renewed pressure after the weak trade numbers from the biggest buyer. As I wrote here, China’s exports and imports dropped by a bigger margin than expected.

Exports dropped by 14.50% while imports tumbled by 12.4% in July. Analysts were expecting the two to drop by 9.5% and 5.6%, respectively. These numbers mean that trade in the second-biggest economy has dropped in over 7 straight months.

Copper is usually highly sensitive to happenings in China, the biggest buyer. As such, weaker economic numbers mean that demand for the metal is also in a downward spiral. 

Data published last week seemed to confirm this as the country’s imports of refined copper slipped to the lowest level in four years. Visible copper stocks have also dropped. On the positive side, imports of copper raw materials has been relatively stable this year.

Worse, the recently announced stimulus by Beijing is not having the desired effect on stimulating the economy. Most of the stimulus measures by the country are meant to stimulate consumer spending.

Meanwhile, many copper mining companies have expressed concerns about the falling demand as economic growth slows. This view is supported by their share prices. For example, Rio Tinto shares have dropped by ~18% from their highest level this year. Similarly, BHP, Freeport-McMoran, and Anglo American have also underperformed the market.

Copper price forecast

The 4H chart shows that copper prices have been in a strong bearish trend in the past few days. This sell-off started when copper rose to the year-to-date high of $4.03. Now, the metal has dropped to the key support at $3.83, which is the lower side of the ascending channel shown in green. This lower side connects the lowest level since May this year.

Copper price has also moved below the 25-period and 50-period moving averages while the Relative Strength Index (RSI) has moved below the neutral point. Therefore, copper prices are hanging on a thread since a drop below the lower side of the channel will point to more downside. If this happens, the next level to watch will be at $3.7500.

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