Copper: All China, all the time

Back in June, copper prices were poised to crack the $3-per-pound level. The market bounced sharply – by close to 15% – but has since retraced a sizable chunk of that rally (Chart 1). Was the rally warranted or just a due-course correction?

To be sure, there have been some bullish developments. On Aug. 21, in its most recent update of the global balance sheet, The International Copper Study Group (ICSG) reported that for May, refined copper slipped into a 17,000-tonne deficit, the first monthly shortfall in six months. While production growth remained robust, demand, primarily from China, grew at a faster clip. Year to date, the market remains in surplus, but if current trends continue, that could be gone in a hurry.

Global economic growth has been steady, but not earthshattering and it was reflected in consumption patterns. In the ICSG’s study period of January through May, U.S. demand was unchanged from the same period last year, but consumption in all other regions, including Europe, Africa, and Asia (excluding China) was negative. The Chinese compensation factor, however, overwhelms the sluggishness in the rest of the world.

It was widely expected that once the torrid pace of Chinese economic growth would slow, so would copper usage. And that was true up until several months ago. Economic data have surprised to the upside, however, and it has been reflected in apparent Chinese demand.

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