On January 16, Ag Metal Miner wrote that copper prices rebounded after being counted into 2023, supported by the relaxation of epidemic blockades in Asia and the depreciation of the US dollar. However, investors should not rule out the possibility of a short-term pullback given that copper prices are still at high levels after a streak of gains.
In recent days, copper prices have managed to break out of previous highs after weeks of retreat. Copper prices managed to hit the short-term demand zone, which usually triggers a bullish force. This confirms the recently formed uptrend in copper prices, ending a downtrend that started earlier in 2022.
From December 2022 to January 2023, the Copper Monthly Metals Index (MMI) has increased by 3.19%.
New data points to the start of a bull market, raising the possibility of further upside in copper prices. However, buyers should not rule out a pullback as copper prices remain at record highs.
In November 2022, copper prices rose more than 3% for the first time since March as Asia eased epidemic lockdown measures. However, copper prices started to trade sideways again in December as soaring infection rates continued to disrupt economic activity. Now, copper prices are clearly bullish again as major cities approach and pass the peak of the epidemic.
While demand in Asia has not necessarily “recovered”, the market appears optimistic. In a recent Financial Times article, Caroline Bain, a commodities economist at Capital Economics, noted that she expects Asian economies to rebound quickly.
Bain is not alone in feeling this way. The market thinks so too. Copper prices have risen more than 7% in the first two weeks of 2023, taking them to their highest level since June 2022.
However, the epidemic wave in Asia is not over yet, and the peak is still two to three months away.This means that we will have to wait until the second quarter to see the real demand for copper in Asia. This period is long enough for the market to engage in potentially excessive speculation. In addition, the general uncertainty related to the recovery in Asia, the continued threat of epidemic-related disruptions will increase the possibility of copper price volatility.
Meanwhile, a depreciating dollar further supported the copper market.In fact, the U.S. dollar index, which tracks inversely with commodity prices, is at its lowest point since June.
In addition, slowing U.S. inflation data continued to weigh on the dollar index. While some were hoping for a bigger drop in the U.S. CPI, the CPI fell 0.1% in December 2022, marking the sixth straight monthly decline. For markets, that could mean the Fed will continue on its current course after slowing the pace of rate hikes last month. The Fed’s next meeting will be held from January 31 to February 1. After a 50 basis point hike in December 2022, this could lead to the Fed scaling back rate hikes. “A 25 basis point rate hike is appropriate for the Fed going forward,” Philadelphia Fed President Harker commented in a recent speech.
LME copper daily chart