Measure of industrial output surges to five-year high in March.
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The price of copper jumped on Wednesday after upbeat industrial activity data from China, consumer of half the world’s industrial metals, provided evidence that Beijing’s stimulus program is finally filtering through to the real economy.
Copper for delivery in May added more than 2% to touch a high of $2.9955 per pound ($6,604 per tonne) on the Comex market in New York. It's the highest level since early July last year.
China's GDP grew at a 6.4% clip in the first quarter compared to last year, handily beating expectations of continued slack in the economy which is growing close to the slowest pace in nearly three decades.
Source: Capital Economics, CEIC
But it was a surge in industrial production that really lit a fire under copper. Official figures showed growth in industrial value-added jumped from 5.3% year-on-year in February to 8.5% in March. Fixed investment, a key driver of commodities demand, accelerated to 6.3% while new construction starts came in 18% higher than March last year.
Lending by the country’s banks hit an all-time record of $870 billion during the first quarter. Capital Economics said in a note that with “credit growth now accelerating and sentiment improving, China’s economy will bottom out before long, if it hasn’t already.”
The research firm HQed in London has developed its own industrial output index for China based on production volumes of key industrial goods (official figures sometimes fall victim to manipulation) and its measure jumped to a five-year high in March.
Source: Capital Economics
Among industrial metals, Capital Economics believe copper will be a relative star performer over the next three years, with constrained growth in supply the main factor pushing prices higher:
This year, output will be curbed by a strike at Peru’s Las Bambas mine and disruptions at other mines in Chile, Spain and the DRC.
What’s more, there is a limited amount of new capacity that is set to come on stream.
At the same time, we expect that copper’s use in green energy, notably electric vehicles, will partly offset the negative impact of the structural slowdown in China’s economy.
Copper bulls will have to be patient though, the firm expects the price of the bellwether metal will drift lower from today’s levels by the end of this year, before rallying to $7,750 by the end of 2021.
Data released over the weekend showed China's ountry's imports of unwrought copper jumped 26.5% compared to the same month last year at 391kt. For the first quarter, imports of refined copper are down 4.3% to 1.18mt however. Last year China imported a record 5.3m tonnes of refined copper.
China's copper concentrate imports are set to handily beat the record set in 2018 of 19.7m tonnes
New smelters and refineries built in China in recent years help to explain the contraction, but the expansion of the downstream copper industry has also increased demand and competition for copper concentrate.
Imports of copper ore and concentrate of 1.77m was up 10.4% in March from a year ago but down from a blockbuster February when cargoes came in at a record 1.93m tonnes for the month.
Imports of copper concentrate were up 20% in the first quarter 2019 at 5.6m tonnes. On an annualized basis concentrate imports are set to handily beat the record set in 2018 of 19.7m tonnes.
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