Copper price dropped to a level last recorded in mid-July amid a persistent bearish outlook on demand. Slowed global economic growth and a strong US dollar have been the key downtrend drivers. In coming weeks, investors will be keen on whether the bears will retest the year’s low of $3.13. At the time of writing, COMEX futures were at $3.38.
Grim demand outlook
Slowed global economic growth remains one of the main bearish drivers for copper price. Indeed, the Chinese industrial profits data released on Tuesday is the latest indicator that major economies are struggling in their post-COVID recovery amid high inflation.
Economic disruptions triggered by coronavirus led to a decline in industrial profits in the year’s initial eight months. This has also been exacerbated by the persistent challenges in the country’s property market. In addition to its uses in the industrial and electrical sectors, copper is also used in construction.
Data released by China’s National Bureau of Statistics on Tuesday showed that profits of the country’s industrial firms dropped by 2.1% between January and August compared to the previous year. In comparison, it had declined by 1.1% in the year’s initial 7 months.
The figures were released after producer price inflation in China fell to 2.3% in August YoY. With the slowing inflation, some firms may find it difficult to pass the cost of goods onto the consumer; an aspect that will lower their profit margins.
Strong US dollar
The rallying of the US dollar is yet another bearish driver of copper price. Indeed, the dollar index hit fresh 20-year high on Wednesday; an aspect that pushed the red metal to a two-month low of $3.25 per pound. The environment of high interest rates and recession concerns have boosted the greenback while weighing on commodities and other dollar-priced assets.
For the remainder of the week, the value of the US dollar will continue to influence copper price. On the data front, investors are keen on the US GDP on Thursday and PCE price index on Friday.