But for copper, there are other factors at play. The current rally is also being driven by China’s better-than-expected manufacturing data. As China is the world’s number one copper consumer, markets have viewed this as higher potential demand.
Take a look at the chart below. It shows spot prices for copper over the past six months. You can see that prices have risen by 60% this year. By end-May, copper prices broke through resistance (blue line) set by previous highs of just under $2.20.
‘Dr Copper’ is rising... but global industrial activity remains dismal
Source: Kitco
Copper is often referred to as ‘Dr Copper’, on its ability to predict economic health. But we don’t see this recent rally as a sign of economic recovery.
Actual industrial demand in the major consuming nations has yet to significantly pick up. And the sector that is one of copper’s biggest users - housing - is still in the doldrums.
Many analysts expect copper to trade sideways over the next few months on an expected slowdown in global industrial activity. They think the current surge is a reaction to Chinese stockpiling and the metal having broken out of a price range.
So could copper maintain its strength later this year? The sustainability of Chinese buying is uncertain. Sheer investor confidence is what’s driving this rally. Things just need to look like they’re at a bottom - even if they aren’t really - and the red metal rallies.
Markets may continue to buy the recovery story, but until the fundamental economic backdrop changes, big boosts to copper prices shouldn’t signal that the worst is over.
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