Uncertainty and tensions weigh on copper price

Over the past few days, the price of copper on the Shanghai Futures Exchange (SHFE) has confirmed the downward trend started last week, in contrast to relative stability on the London Metal Exchange (LME). In fact, looking at prices in euro, there was a drop of close to 2% at the SHFE compared to last Friday.
Let us take a closer look at this week's events and news that influenced the price of Doctor Copper.

The pandemic factor weighs on the Chinese scenario

With Covid cases on the rise again this week, China is seeing an increase in related restrictions - measures that are reflected in the sentiment of residents and business owners, as well as investors. All the more so at a time of a "seasonal" increase in cases, the Covid factor and related restrictive measures therefore appear to remain a major factor in influencing copper price dynamics, significantly weighing on market sentiment.

Supporting the price of copper, however, is Thursday's news of a new initiative in favour of the Chinese real estate sector, following the 16-point plan announced last week. The Industrial and Commercial Bank of China in fact announced an extension of its credit lines to 12 builders; on the same line, other state banks this week announced the possibility of new loans to a heavily indebted sector. According to experts, these initiatives signal the authorities' intention to boost confidence in a sector that plays a key role in the country's economy.

China's monetary policy is also moving in the same direction of support for an economy navigating difficult times, with the announcement today by the People's Bank of China of a reduction in the reserve requirement ratio (RRR) for banks by 25 basis points. This is therefore a move aimed at supporting the country's economy, which is weighed down especially on the Covid and real estate fronts.

Moving away from the Asian context, a further element of attention for the impact on copper prices are the ongoing tensions in Chile, the world's largest copper producer, at the Escondida mine. The mine is reportedly at risk of a strike due to protests on the safety front; the lack of an agreement between the parties at the moment threatens a two-day strike next week.

The economic climate

Widening our gaze to other indicators that, together with the dynamics of copper, may provide insights into the evolution of the economic environment, we focus this week on the World Container Index, an index that provides weekly evaluations of 40-foot container freight rates.
After the climb that began in the second half of 2020, and the reversal of the trend since the end of 2021, as of today the index is basically back to the values of two years ago. According to experts, the gradual fall reflects markets' pessimism on the demand side, which has been penalized by fears of inflation and recession.

The latest Flash PMI data for the Eurozone (Purchasing Managers' Index), released on Wednesday, point in the same direction. In November, economic activity in the Eurozone contracted for the fifth consecutive month, but the intensity of the fall was reduced. The Flash Eurozone PMI Composite Output Index came in at 47.8 for November, below the neutral threshold of 50, but higher than the 47.3 recorded in October.
Business sentiment as measured by the PMI remains, in any case, negative in the face of falling demand, thus confirming the signals coming from the freight rate front.