Copper price rose by more than 50 basis points after the Chinese central bank left all interest rates unchanged. The bank left the base interest rate at 3.85 per cent earlier today.
PBOC interest rates
Copper is an important metal used in the manufacture of items used in the construction and electrical industries. A healthy China is usually a sign of increased demand because the country is the biggest consumer.
In recent days, business activity in the country has been returning after the coronavirus shutdowns. In April, industrial production and exports rose sharply as external demand appears to return. Another data showed that oil consumption in the country returned to pre-coronavirus levels. These are indirect signs that demand is rising.
Today, the PBOC left interest rates unchanged and changed the wording of the policy statement. Most importantly, the bank deleted the phrase “no aggressive liquidity injection” in the statement. This could be political because the parliament jamboree is expected to start this week.
Australia-China trade war impact on copper price
Another catalyst driving the copper price is the emerging trade war between China and Australia. Just this week, China has added tariffs on several goods it imports from Australia. Some of the goods affected are seafood, oatmeal, and fruit. While copper has not been tariffed, there are signs that trade between the two sides will be affected. This is important because Australia is one of the biggest copper producers in the world
Meanwhile, other countries are starting to open up, which is a good thing for copper because it will lead to more demand.
The biggest challenge for copper prices is whether there will be a demand surplus or deficit. In a recent report, S&P Global said that the industry will go through a surplus this year after being in a deficit a year before. The organization expects a surplus of about 22,000 metric tons this year. Still, copper mines shutdowns could help trim this surplus.
The chart below shows how copper stocks like BHP have bounced back.
Copper stocks have been rallying
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Copper price technical outlook
Copper price is trading at $2.4185, which is slightly below this week’s high of $2.4400. On the daily chart, the price is stuck at the 50% Fibonacci retracement level. The price is also between the 50-day and 100-day EMA. Therefore, a move above this week’s high of $2.4400 will validate a long-term bullish trend.
On the other hand, a drop below $2.3120 will invalidate this trend. This price is along the 38.2% Fibonacci retracement level.