China, tight supply key as growth in global economies slows
By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — Copper prices have fared better than gold and silver this year, a testament to their resilience in the face of mostly downbeat global economic data and a possible indicator of a coming rebound.
Copper futures HGU2 -0.85% have climbed about 2.7% on the Comex division of the New York Mercantile Exchange since the end of last year. That compares with about a 0.9% rise in gold futures GCQ2 +0.22% and a fall of about 2.5% in silver futures SIU2 +0.01% .
Copper prices have been trading higher to unchanged on the year and “this is a good signal that economic conditions around the globe may not be as dire as has been reported,” said John Person, president of NationalFutures.com.
Weakness in China’s economy has been a key demand concern for the commodities market, and the International Monetary Fund recently downgraded its forecasts on the nation’s GDP growth for this year and next. Read about IMF’s China GDP forecast.
But “even though China’s growth has declined, the major infrastructure projects are proceeding, and that is where much of the copper use goes,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Md. “China’s economic development is in the sweet spot for copper use.”
And while recovery in the U.S. has also been slow, housing data in both China and the U.S. show signs of improvement, implying better construction demand for copper.
Chinese house prices were unchanged in June from May, ending eight-straight monthly declines, and U.S. builder confidence for newly built, single-family homes climbed in July to its highest level since 2007. Read about the China data. Read about the U.S. data.
The improvement in the U.S. housing market has rallied stocks of home builders such as Lennar Corp. LEN -0.20% and PulteGroup Inc. PHM -3.06% , which have posted gains of 54% and 66%, respectively, year-to-date.
The surge in the housing sector “may explain why copper prices have been holding steady all year and may indicate that the U.S. economy may not be as weak as some believe,” said Person.
“The [U.S.] jobs data and other economic reports have suggested growth is moderating, but copper prices are revealing that economic growth, while not robust, is certainly not reversing,” he said.
China in the driver seat
China will continue to be in the driver’s seat when it comes to where the copper market is headed next.
China consumes around 40% of all the copper produced in the world, said Ted Arnold, a London-based independent consulting minerals economist. “They are the copper market.”
German copper producer Aurubis DE:NDA -0.19% AIAGF +15.01% said in report issued in June that copper demand is expected to continue to expand in the second half the year, and Chinese demand for the year is still projected to reach 8.4 million metric tons — 8% above last year’s volume.
The “Chinese economy (and that of other emerging markets) is still at quite a copper-intensive stage of development,” Arnold said. China “will continue to be a large net buyer of copper from the world market for many years to come.”
Data on the second quarter show that China’s GDP rate fell to 7.6%, but the fixed asset investment figure rose to 20.4% in June from 20.1% in May, according to Arnold — with the rise “almost certainly reflect[ing] increased government spending on infrastructure and public works.”
Expectations for further stimulus in China, as well, should provide support for copper.
“The stimulus efforts should provide some lift to economic growth, and likely copper prices as well,” said Robert Haworth, senior investment strategist at U.S. Bank Wealth Management.
