In anticipation of more robust market-supporting policies from China, copper prices fell -0.84% Wednesday, closing at 715.95. The People’s Bank of China implemented measures to stimulate economic growth, including lowering the reserve requirement ratio for financial institutions and executing 100 billion yuan in 14-day reverse repos.
In an effort to promote economic expansion, these steps are projected to unleash around 1 trillion yuan in long-term liquidity. But, as China gets closer to the Lunar New Year break, demand there stays low, which means the copper market isn’t moving as much.
A tightening supply situation is also indicated by the fact that copper inventories in LME-registered warehouses kept declining and reached five-month lows. The Shanghai Futures Exchange tracks copper inventory, which rose 36% this week to reach their biggest level since July, coinciding with this slowdown.
The world’s greatest producer of copper, Chile, produced 495,537 metric tones of the metal in December, unchanged from the previous year. But during the same time frame, Chile’s manufacturing output fell by 1.8%, raising the possibility of problems with domestic demand. The copper market’s technical picture points to long liquidation in the face of these fundamental factors. There was a -6.1 rupee drop in pricing, but open interest stayed at 5207.
