Copper Fundamental Forecast – August 2, 2016

Copper gained 18 points to trade at 2.24 at the very top of its trading range as the weak US dollar helped support the industrial metals. Chinese manufacturing PMI’s painted a mixed picture for July. The government’s reading slipped back below the 50 boom/bust threshold (49.9) while the Caixin PMI jumped to the highest since February last year (50.6 from 48.6), largely beating expectations (48.8). The non-manufacturing PMI printed at 53.9, from 53.7 in June.

More than 10 financial institutions in China pressed the provincial government in Hebei this month to act swiftly to resolve a multi-billion-dollar debt crisis that blew up early last year after a state-owned credit guarantee company became technically insolvent.

Investors are still betting on a revival in copper prices. Hedge funds and money managers added to their net long position in COMEX copper, U.S. Commodity Futures Trading Commission data showed on Friday.

In wider markets, weak U.S. economic growth data knocked down the dollar, underpinning commodities which boosted the purchasing power of buyers paying with other currencies.

U.S. economic growth unexpectedly remained tepid in the second quarter as inventories fell for the first time in nearly five years and business investment weakened further, offsetting robust consumer spending.

Nearly half of copper consumption finds usage in building and construction. With copper often considered by economists as a barometer of economic activity, demand for the brown metal is positively correlated to world GDP growth. According to World Bank data, world GDP growth trended lower from 4.3 per cent in 2010 to 2.5 per cent in 2015. While global growth for 2016 is projected at 2.4 per cent, it is expected to grow to 3 per cent by 2018. Economic activity in China, which is the largest consumer of copper (consumes over 40 per cent of global production of copper), has also slowed in recent years which, again, has weighed on the metal’s price The country’s GDP growth since 2010 fell from about 10 per cent to 6.7 per cent in June 2016 quarter. A deceleration in the country’s economic activity impacted the construction sector’s demand, thus hitting copper prices.

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