China is Letting Copper Down

China is Letting Copper Down

Then lifting it right back up

Getty Images

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.

Rate cut

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. 

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.