Copper is off its lows

Copper is up 1% today, as traders buy back into the metal after it closed at a three-year low yesterday.

China is the biggest importer of copper worldwide, a fact that has led traders to sell the red metal in anticipation that Chinese demand will dwindle. This is due to the HSBC survey of Chinese manufacturing which shows that the sector has contracted for a second consecutive month, leading to concern that China is in for a credit crunch.

The cost of borrowing for Chinese banks on the overnight market has risen and is also weighing on investor sentiment; the People’s Bank of China has stated it will not force banks to curb their loose-lending policy, which may do more harm than good in the long-run. If further doubts are cast over China’s credit markets, we could see copper fall further.

Traders are eyeing the US dollar which is largely driven by the actions and statements of the Federal Reserve; the current rally that the currency is seeing is down to the belief that the Fed will trim its stimulus package in the next few months. The US will announce durable goods orders at 1.30pm (London time). If the report is strong, it may drive the US dollar higher which could drag on the price of copper.

High grade copper chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.