Commodities Analysis & Opinion

Copper Creeps Toward June Highs in a Complicated China Bet


  • China’s worsening COVID woes might limit copper rally, outlooks say
  • Possibility of US, European recessions add to global complications for metal
  • LME copper could round year out by averaging $8,775 a tonne
  • Near-term peak for COMEX copper seen at $4.58 an lb

Copper prices are creeping toward June highs in a rally that has seen few stops since China abandoned all coronavirus restrictions in the country. Metals bulls, predictably, are excited, saying ‘why not?’ Betting on copper in an exploding Chinese economy is like setting up a lemonade stall on an insanely hot summer day; you just can’t lose.

Yet, there are both domestic peculiarities and a global element to this bet on copper and China that make it more complicated than the average wager on the red metal’s prospects in the No. 2 economy.U.S. Copper Futures Daily Chart

Firstly, let’s explore China’s local anomalies, beginning with its pandemic issues, which haven’t gone away and are only getting worse by the day.

Beijing’s lifting of lockdowns and other COVID measures will, over time, help the Chinese economy normalize. But in the short term, there could be very high levels of new infections from the virus in the world’s largest population, with the spikes coming at a time when the economy is still vulnerable.

China’s economy closed last year in a major slump. Factory activity in the country contracted in December at the fastest pace in nearly three years. The official manufacturing purchasing managers’ index (PMI) slumped to 47 last month from 48 in November, according to the National Bureau of Statistics. It was the biggest drop since February 2020 and also marked the third straight month of contraction for the index.

China’s non-manufacturing PMI, which measures activity in the services sector, plunged to 41.6 last month from 46.7 in November. It also marked the lowest level in nearly three years. And although the government has stepped up its support for the property market, the effects are still slow to take effect – home sales fell again in December.

The Chinese people won their freedom from COVID incarceration by literally butting heads with the police. As much as they value that freedom, the idea of them continuing to travel to work (there is little work-from-home in China) when large swathes of the community around them are falling ill is debatable.

The authorities in Beijing, having done a 180-degree turn from a COVID-zero to “COVID-anything” policy, are unsurprisingly indifferent as to whether they will institute new lockdowns if the virus situation worsens.

Absent mass immunization, China’s plan seems to be that mass immunity against COVID is achieved via mass infection. This was exactly what Beijing had been trying to avoid over the past three years, with super-cautious and stringent control measures for the virus.

But now, the Chinese people’s wish to be free from COVID controls ought to come at a price — their government seems to have determined. Up to a million Chinese residents, especially the elderly and those with pre-existing ailments could die from the virus over the next few months, health models have predicted.

China’s so-called COVID crisis 3.0 — coming after the primary breakout in 2020 and the evolving situation over the past two years with the pandemic — could coincide with the US and Europe entering into a recession later this year.

Beyond that, any rally in copper will depend on the Federal Reserve monetary policy. Less aggressive tightening by the US central bank would limit any upside in the dollar and could further boost prices (the dollar hit seven-month lows lately, fanning the run-up in copper and oil, among other commodities). But if the Fed remains stubborn in wanting rate hikes till inflation returns to its legacy 2% per year target (inflation is now at 6.5% a year, based on the December Consumer Price Index reading), then the rally in copper and other major commodities may just sputter.

This is where the global factor of the bet on copper and China weighs in. Any international slowdown in demand will likely impact manufacturing recovery and export growth in China as well, even if its domestic issues abate.

Some of these complications were cited in a global outlook on copper issued a fortnight ago by Dutch banking group ING, which remains cautiously optimistic about the red metal in 2023. In the outlook, ING commodities strategist Ewa Manthey says:

“We believe, for copper, China’s COVID policy change should prove supportive for demand in the medium to long run, although rising COVID infections could weigh on demand in the immediate term.

However, global macroeconomic headwinds are likely to persist in 2023 and the risk of global recession will remain a threat to the demand recovery in China, capping further gains.”

Conversely, a pickup in Chinese economic activity could even spur demand for copper in the United States, says the US-based Institute of Scrap Recycling Industries, or ISRI.

A recent ISRI weekly market report said US exports of recycled non-ferrous metals, including copper, were up 4% year over year, totaling 3 million metric tons.

US exports of recycled copper and copper alloys also increased 2.5% year over year through November, rising to 862,000 metric tons, said the report. It attributed the growth to higher demand from various global sources, beginning with China, which saw a 26% hike in demand; India, where demand grew by 66%; and Thailand, which saw an increase in demand of 45%. Those increases offset a 57% drop in recycled copper shipments to Malaysia, ISRI stated.

Specifically for copper prices this year, ING forecast that the benchmark

Three-month futures contract on the London Metal Exchange could consolidate from Wednesday’s 7-month high of $9,430 a tonne (which was short of the June peak of $9,715) to reach between $8,500 and $8,900 over the first three quarters.

LME copper could return to $9,000 in the final quarter, although the average for the year was seen at $8,775, the ING forecast added.

While copper prices are up 11% for this year, they are down some 13% from the March 2022 record high of $10,791 on the LME.

On the US front, front-month copper on New York’s COMEX soared to as high as $4.3550 an lb on Wednesday, nearing the June peak of $4.579.
U.S. Copper Futures Weekly Chart

Near-term technical charts for COMEX copper suggest a retreat below $4, before a push higher that could take the metal above its June peak, said Sunil Kumar Dixit, chief technical strategist at

“COMEX copper’s daily Relative Strength Indicator shows overbought conditions, with stochastics in a similar mode, calling for a pull back towards support areas of $3.93.”

Since the metal is in an uptrend, buyers are likely to resurface on the test of the support areas and the rally could resume, for a retest of the swing high to $4.36, setting up a potential horizontal resistance at $4.58 over the next two weeks, he said.

“Weekly price action indicates a copper stabilization at above the 100-week SMA of $4.15, supported by the 5-week EMA of $4.05,” Dixit added, referring, respectively, to the Simple Moving Average and Exponential Moving Average.



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