Improving Macros Lead To Rebound In Copper, But Global Growth Continues To Worry

Most commodities in base metals pack have bounced off the multi-year lows hit in March this year led by a sharp rebound in Copper prices. LME three month Copper prices that had hit January 2016 lows of $4,371 as on March 19 have rebounded more than 21 percent to trade near $5,350 levels.

The recovery in prices has been on the back of improvement in global risk appetite as has been evident from a rebound in equity indices.
Global sentiments have improved amid hopes of pick up in global activity as many regions across globe, lift lockdown restrictions. European hotspots like Italy, Spain, Germany and UK along with various regions in US are gradually reopening their economies as the pace of new infections decline. Also lending support is loose monetary stance by central banks of major economies to revive growth.

More recently the risk appetite has further been lifted amid optimism over progress on virus vaccine front. As per the latest report from Bloomberg, Moderna Inc. said its vaccine tests yielded signs it can create an immune-system response in the body.

Copper prices have further sought support tracking improvement in China's macro-economic data which is indicating early signs of recovery and fanning hopes of revival in demand from the region. Data from the nation last week showed that industrial production rose by 3.9 percent in April; its first gain this year following 1.1 percent drop in March and 13.5 percent plunge in first two months of 2020.

On fundamental front, prices are also seeking support from falling stocks at SHFE warehouses along with signs of pickup in demand from China as is evident from jump nation's copper import premium. Copper stocks at SHFE have declined more than 171,000 since hitting four year high of 380,000 in mid -March. Meanwhile, China's Yangshang Copper import premium have surged to an October 2018 high of $112.50 a tonne from $55 in February.

However, on the flip side recent jump in stocks at LME warehouses and the expectation of easing worries over supply especially from Peru may disrupt the rally in prices. Copper stocks at LME jumped 55,650 tonnes on May 14, the second-biggest daily inflow on record in data going back to 1997, as reported by Bloomberg. Meanwhile supply worries from Peru, the world's second-biggest-producer of copper, are expected to ease as miners are set to restart operations in the coming days and ramp up to around 80% of normal production levels within a month.

Furthermore, on macro front, the gains may also be challenged by global growth worries along with renewed tensions between US-China. The recent spate of bleak data from major economies like the US and Euro Zone highlights the damage of coronavirus on global health. Meanwhile, tensions between the world's two largest economy viz US and China have risen following political sparring between both the nations over coronavirus outbreak.

Overall the recent upbeat risk appetite may continue to be supportive of Copper prices however further run up in prices may face challenges especially on fundamental front.