Copper prices have declined almost 3 percent this week on the back of a stronger US dollar and weaker-than-expected Chinese manufacturing data.
Copper prices have been under pressure since the start of the week as the US dollar rallied after hawkish comments from the US Federal Reserve, and China released weaker-than-expected manufacturing data for February.
On Wednesday (February 28), LME copper touched a two-week low, falling 1.3 percent to $6,932 per tonne. Prices have declined 2.73 percent since Monday (February 26).
“Part of the reason (for the weakness in copper) is the Chinese data which came in weaker than expected,” FOREX.com analyst Fawad Razaqzada told Reuters.
“When manufacturers are not as optimistic as before, that tends to weigh on demand expectation for metals and other commodities in general,” he added.
China, the world’s top copper consumer, saw its manufacturing sector slow down to its weakest in over one and a half years due to tougher environmental regulations.
Meanwhile, the US dollar surged to a five-week high, hurting copper demand. A stronger greenback makes commodities priced in dollars more expensive for investors using other currencies.
The US dollar climbed after Fed Chairman Jerome Powell said he plans to stick with gradual interest rates increases despite the added stimulus of tax cuts and government spending.
“The dollar trends are really influencing prices, especially of copper,” ABN Amro’s Casper Burgering said. “On the fundamental side, there are few real indicators. China has just returned from its holiday and the market is still not quite (back to normal) yet. The non-fundamental drivers are pushing prices.”
That said, analysts expect copper prices to rebound in the next few months, as the long-term demand outlook remains strong.
“Copper is in an uptrend and the moves lower have been choppy affairs, making it seem likely that these are corrective drops, nothing more,” said Marex Spectron’s Alastair Munro.
Looking ahead, firms recently polled by FocusEconomics estimate that copper prices will average $6,808 per tonne in Q1. The most bullish forecast for the quarter comes from Natixis, which is calling for a price of $7,500; meanwhile, Societe Generale (EPA:GLE) is the most bearish with a forecast of $6,250.
“Looking beyond 2018, prices look set to trend upwards, on greater demand for infrastructure, electric vehicles and renewable energy,” FocusEconomics analysts added.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.