Copper futures (COPPER) are trading down more than 1.5% today and are retreating after an impressive August rebound. China's copper stocks, in June this year, reached historic highs with 336,000 tons, but have been on the decline since then. At the same time, also in June, China's copper exports reached a record 158 thousand tons, which only confirms that demand in the domestic economy, which is struggling with the crisis in the construction sector - is (or at least was) very weak.
- In July, however, China's copper exports unexpectedly fell by 70,000 tons, as stocks on the Shanghai exchange steadily declined. The last two weeks, according to the Hightower report, saw the largest drop in domestic copper stocks, in all of 2024 (24 and 11.1 thousand tons, respectively). As a result, investors are beginning to reconsider whether this is a seasonal effect and an anomaly, or whether demand for copper in China's economy has really begun to slowly recover.
- Since the beginning of August, copper contracts have risen nearly 8%, on a wave of falling Chinese inventories, a weakening dollar and increasing chances of Federal Reserve rate cuts. Now that contracts have reached a resistance zone, investors may again be 'weighing' the fundamental factors behind sustaining the rebound at a time when the outlook for the global economy, including China's, remains uncertain.
- Investment in the construction sector, in China - although higher y/y is encountering weak demand. In addition, inventories on the London Stock Exchange (LME) remain high, and 'mixed' data out of China may continue to limit market euphoria associated with monitoring inventory levels in Shanghai. Saxo analysts pointed out that the rebound in August was driven by newly built hedge fund positions. We can expect, that if global economy will not slow down meaningfully, US rate cuts may support copper prices.
Shanghai copper stocks are trading down slightly, but are up more than 220,000 tons from their 2023 peaks. They are currently at their lowest since March (seasonally, stocks are lowest in December, then record a seasonal spike, at the beginning of the year, when China is in a 'lunar year'). During this seasonal period, they have risen by more than 94,000 tons this year, a historic high. Source: Bloomberg Finance L.P.
COPPER (D1 interval)
Copper futures are down 1.5% today, with the rise halted at the 38.2 Fibonacci retracement level of the 2022 upward wave.
Source: xStation5
