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During the Lunar New Year holiday, activity in China tends to slow down. While this year the occasion will only close the country’s markets for five days, some investors are no doubt wondering what that means for metals prices — and for copper in particular.
By Patrick Kwan from New York City, USA. Dragon in Chinatown NYC Lunar New Year, via Wikimedia Commons.
During the Lunar New Year holiday, activity in China tends to slow down. While this year the occasion will only close the country’s markets for five days, some investors are no doubt wondering what that means for metals prices — and for copper in particular.
China accounts for roughly 40 percent of global copper demand, so it’s worth considering the holiday’s effect on the metal. While Stefan Ioannou, a mining analyst at Haywood Securities, isn’t particularly focused on the subject, he did tell Copper Investing News that the Lunar New Year is “a seasonal thing that most market participants are aware of.”
“Consumption numbers out of China early in the year are usually a bit lower because of the Chinese New Year,” he said, adding, “…things don’t stop completely, but they definitely slow down.”
As Global News notes, Chinese factories shut down during the holiday, with migrant workers traveling home as much as weeks earlier. Trading comes to a stop at financial hubs in both Hong Kong and Mainland China, and Andrew Sullivan, managing director at Haitong Securities in Hong Kong, told the publication that trading volumes “drop off considerably” three working days before the start of the holiday.
So far in 2015, the copper price has fallen about 9 percent, hitting a five-and-a-half-year low in January.
However, the start of the Lunar New Year doesn’t seem to have caused a major drop for copper. On Wednesday, the red metal rebounded slightly as those bullish on the metal “took advantage” of investors in China being absent for the holiday, according to Reuters. “Yesterday the selling was coming from the Far East, but they’re not around at the moment,” a trader told the publication. “The price was ramped up through resistance, and that set off stop-loss buying.”
The metal’s price hit $5,775 per tonne by 3:05 p.m. GMT on the London Metal Exchange on Wednesday, while spot copper saw a slight bump in price to about US$2.60 per pound. On Thursday, the price was more steady, sitting at about $2.61 per pound.
Of course, some other metals haven’t been so lucky. Gold briefly dipped below $1,200 per ounce on Wednesday, while silver fell as low as $16.30 per ounce on the back of concerns over slowing demand due to the start of the Lunar New Year. The metals recovered slightly to about $1,209 and $16.47, respectively, on Thursday.
That said, Ioannou stressed that there isn’t much for investors to worry about when it comes to the New Year. “It’s not due to underlying economic concerns or anything,” he stated. “It’s a holiday.”
So what can investors expect once the Lunar New Year holiday comes to an end? The analyst stated that volumes usually pick back up again soon afterwards. While he stressed that “it might be a bit naive” to anticipate demand going through the roof right on February 24, when the holiday ends, he is optimistic.
“Over the course of the following weeks, you’ll probably see demand … picking up,” he said.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
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