On a day to day basis, if you are trading copper you are looking at 4 main factors that affect the price. In order of importance they are; Chinese economic data, global economic strength, supply disruption, and the strength or weakness of the U.S. dollar currently. That's it. Those are the main drivers that account for 100% of copper's daily fluctuations. China is first on the list because they are by far the largest consumer of copper in the world. China and Asian copper usage in general accounts for about 62% of total copper usage. By contrast, the U.S. is only 14%. For most of 2018, China's economy was letting copper down and prices were going down. From the high on January 2nd to the lows on March 26, copper prices fell 11.6% and much of it came from Chinese data disappointments including this week's better retail sales, but mediocre GDP figures and weaker industrial production data.
3 out of 4
So essentially what we've had is 3 out of 4 of the factors that drive copper price, pointing to lower copper. With average data out of China, potential global tariffs that would hurt the global economy and no supply disruptions, which is very unusual, the only real bullish factor has been the weaker dollar (which has an inverse relationship to the price of copper). Starting on March 27th however, copper came out of its shell and closed higher in 11 of 15 trading sessions including a 2.4% jump yesterday, on a day where the dollar finished higher. Why the reversal and the big day yesterday? China stepped up.
China decided to reverse some of last year’s monetary tightening. The apparently were more concerned about slower growth than even copper was pricing in. Short-term rates in China drifted lower in recent weeks and on Tuesday, the Peoples Bank of China (PBoC) cut the bank reserve requirement (RRR) by 100bp. This was a sign of not only a stronger Chinese economy but it also gave credence to the idea that China would actually open their markets more and avoid tariffs. If China was worried enough to cut rates, then they are worried enough to negotiate opening their markets more to foreign goods and foreign investors. When it comes to copper prices in 2018, China taketh away, and China giveth.