Copper price has been on a sharp decline for over a month now; plunging to its lowest level since November 2020 earlier on Wednesday. Notably, the previous session was the first time that it dropped below the critical support zone of $3.50 since January 2021. As at the time of writing, it was at $3.42.
Global economic growth
Dr. Copper as the red metal is commonly referred to is a bellwether for global economy. This is founded on the fact that an expansion of the economy results in a surge in industrial activity and the subsequent demand for the metal.
After hitting a fresh all-time high of $5.02 about four months ago, it has since dropped by over 30%. Despite the supply tightness that boosted it to the record high, recession concerns have been the main driver in recent weeks. Besides, as is the case with other commodities, a strong US dollar is also weighing on copper price.
Chinese demand
China is another crucial factor in the copper price outlook for the year’s second half. The Middle Kingdom is the top consumer of industrial metals such as copper and silver. The Caixin manufacturing PMI data released late last week showed that industrial activity in the country expanded in June for the first time in four months.
The expansion was largely founded on the easing of COVID-19 restrictions in the major cities of Beijing and Shanghai. Even so, investors remain cautious about the situation following the surge in coronavirus cases reported in other economic hubs within the country.
The province of Jiangsu, which is the second-largest contributor of the country’s economic output, as well as the Yangtze Delta region that accounts for about a quarter of the nation’s economy, are some of the areas that have recorded a rise in COVID-19 cases.
Concerns over the Chinese real estate market have also contributed to the heightened demand concerns and subsequent decline in copper price. Granted, it may be past its worst plunge. Even so, it still has a long way to go to attain full recovery.
One of the major uses of copper is in the construction industry and broader infrastructure sector. As such, heightened concerns over demand from the second-largest economy and leading consumer of metals is bound to impact the market.
Earlier in the week, Shimao Group, another major real estate developer in China, defaulted on its debt. Since Evergrande’s insolvency, other major developers such as Kaisa and Fantasia have also defaulted on their debts. COVID-19 and slowed economic growth continue to weigh on the sector.
