Will China’s stimulus revive copper demand?

By Metal miner

In general, Monthly Copper Metals Index (MMI) it fell 4.56% from July to August.

In addition to a short-lived spike in early July, copper prices today remain in a downtrend, with prices down 5.76% from the previous month. Prices managed to bounce back in August, though not enough to signal a trend reversal. (Follow weekly copper price trends in MetalMiner’s newsletter)

World’s largest copper mine ends strike

A strike at the world’s largest copper mine helped boost current copper prices, putting the downtrend on pause in the first weeks of August. Wage disputes sparked a union strike at BHP’s Escondida mine in Chile, which began on August 13. By August 18, however, the Union agreed to a new three-year deal that ended the protests. Escodite represents about 5% of global copper.

Disruption has become a fixture in the mining sector in recent years. Beyond Chile, Peru’s copper mines, including the world’s second-largest copper mine, Las Bambas, have faced repeated shutdowns as communities pressured mining companies for more support. Meanwhile, First Quantnum’s Cobre Panama copper mine remains idle following community backlash.

On an individual level, mining disruptions do not have a significant impact on copper prices today, as demand at the refined level plays a much larger role. However, as a long-term copper supply shortage looms, such disruptions have greater potential to spook market participants waiting for supply tightening to materialize.

Copper prices today, Chinese steel price correlation is eroding

Had China’s copper consumption turned out to be stronger in the last quarter, copper prices would have been able to avoid the bearish pullback seen since late May. Conversely, limited consumer demand allowed for a significant rebuild in SHFE inventory levels, which eventually offset the relative tightness in the US.

Much of China’s gloom concerns its real estate sector, a bubble that has been deflating for years. The stimulus measures announced so far have proved unable to stem the decline in housing prices, a situation exacerbated by China’s aging population. As a result, key industries such as steel began to deteriorate call that China has already peaked its demand for steel.

Source: MetalMiner PerspectivesGraphical analysis and correlation tool

Through the second half of 2022, China’s LME and HRC copper prices had a strong correlation of nearly 91%. This correlation subsequently broke down. Between July 2022 and the present, the correlation has reversed to -46%, with the two price points often, though not reliably, moving in opposite directions.

Calls for Chinese stimulus continue

Much of China’s support for its economic woes has come in the form of incentives for its renewable sectors. While electric and solar vehicle production helped offset a lack of demand for copper from China’s deflating real estate sector, those sectors failed to keep pace for steel. As a result, today’s copper prices continue to outperform Chinese HRC prices, which remain in the doldrums.

There are no guarantees that Chinese copper demand will continue at pace, as both sectors risk bubbles. age and solar overcapacity could derail China’s plan to use the sectors to pull the country out of its current crisis, especially as Western nations step up protectionist efforts.

China’s stimulus gambit: Rating cuts will ignite growth or fan the flames of yuan deflation

China, meanwhile, has largely held back from announcing more significant stimulus efforts. Many expected the conclusion of China’s Third Plenum, an economic meeting held every five years, to lead to a wave of government support measures. However, they were ultimately disappointed by their lack of importance tariff reductions. As the US is poised to cut its own rates, expectations for stimulus have returned, with some believing the cuts will allow China to spend more without risking more. deflation of the yuan.

There is no guarantee that it will happen or if it will prove effective in stimulating consumer demand if it does. China cannot build its way out of its current challenges. After all, who would they build for? It makes sense why China continues to lean so heavily on the export market to maintain growth. However, as other countries have imposed blockades on Chinese materials and products, China’s demand for metals such as copper could face challenges if consumer demand does not improve.

By Nichole Bastin

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