Gains by the U.S. dollar caused copper prices to fall last week, but renewed hopes for increased stimulus in China curbed the metal’s losses. The dollar saw its value rise to a one-month high after comments made by U.S. Federal Reserve Board Governor Christopher Waller contributed to reduced investor expectations of a benchmark interest rate cut in March.
London Metal Exchange CMCU3 three-month copper prices decreased by 0.2% to trade at $8,363 per metric ton after the official’s comments. Waller said that although the country was “within striking distance” of the Fed’s 2% inflation goal, the central bank shouldn’t be too quick to lower benchmark interest rates until the Fed is certain the lower inflation levels are sustainable. Furthermore, Waller noted that the central bank should be methodical and careful with its rate cuts and avoid making “large, fast reductions” that the Fed typically deploys when it is attempting to bail out the U.S. economy from an impending downturn or shock.
These comments reduced hopes that the Fed would cut interest rates in March, causing the dollar’s value to spike and lowering gold prices. According to Ole Hansel, the head of commodity strategy at Copehnagen’s Savo Bank, Waller’s comments rattled the market and highlighted that the risk of inflation preventing the bank from slashing rates was so intense the market is now pricing in.
As a stronger dollar makes commodities prices in the greenback more expensive, gold saw its prices slip as reduced expectations of an interest rate cut caused the dollar to surge to a one-month high. Even so, Hansen notes that copper is performing “reasonably well,” despite these headwinds largely due to speculations about stimulus in China.
China is the largest copper consumer and uses roughly one-half of all the refined copper in the world. This means that the global copper supply chain is extremely reliant on Chinese imports. With the Asian economic giant developing domestic copper production, China’s copper imports fell by 6.3% in 2023 and are predicted to drop even further this year as the country expands local production.
China’s real-estate industry, one of the largest copper consumers in the country, has slowed down in recent years as major developers such as Country Garden and Evergrande grapple with significant debt problems, contributing to far-reaching consequences, including slower economic recovery from COVID and youth unemployment.
Government stimulus to encourage economic activity and growth could cause demand for metals such as copper to spike in 2024.
Major copper producers such as Southern Copper Corporation (NYSE: SCCO) will be keenly following the dynamics influencing global copper prices this year as these price movements could impact their bottom lines.
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