Copper also joined the industrial metals’ party in February. Three-month copper on the London Metal Exchange hit a (fittingly) three-month high in the first week of March, finally showing some signs of strength. It was about time, giving a good window of opportunity for buyers to buy some volume.
Truth be told, there weren’t really any bullish developments within the copper market in February. The price rally looks more like it was caused by a weaker dollar and momentary stabilization in global markets. Indeed, copper was one of the weakest metals in February.
Chinese Imports Down
China’s imports of unwrought copper and copper semi-finished products came in at 440,000 metric tons in January, down 17% from December 2015. Copper imports are still high compared to historical levels but they have come down significantly compared to the strong numbers seen in December.
Some people use China’s copper imports as an indicator for copper demand. Therefore, higher imports in Q4 last year could be interpreted as strong Chinese demand for copper. However, lower numbers in January combined by a surge in inventory registered with the Shanghai Futures Exchange (SHFE) make us think that the rise in imports in Q4 looks more like a massive stock-building exercise than actual demand growth.
In February, China’s official manufacturing purchasing managers’ index fell to 49 which was below market expectations. It also came in below the reading of 49.4 in January. February’s reading is the worst official manufacturing PMI since November 2011. It also marks the seventh consecutive month that the manufacturing PMI stayed below 50 (a PMI reading below 50 shows the shrinking manufacturing activity in China).
Despite bad Chinese economic numbers, copper managed to rise with global markets, as if the bad news is being cheered on in hopes of more stimulus. But previous government’s attempts to boost the economy failed. Certainly, investors’ sentiment on China will need to make this copper rally sustainable in the longer term.
Meanwhile, in the US PMI data rose to 49.5 in February from 48.2 in January and that was higher than expectations. However, it’s still below 50, showing that the sector is shrinking. Although the fact that the index is closer to 50 is somewhat positive.
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