KEY POINTS
- Copper prices drop 7 percent after a disappointing China stimulus announcement.
- Market hopes for a repeat of May’s copper rally are fading.
- COMEX stock levels are higher than during the May rally, moderating price speculation.
Copper prices tumbled nearly 3 percent to $4.44 per pound ($9,790 per tonne) on Tuesday, with traders selling off after China’s anticipated stimulus announcement failed to deliver the expected impact.
The market had previously seen a surge in prices, with copper comfortably exceeding the $10,000 per tonne mark in late September. According to Mining.com, this was driven by optimism around Beijing’s “bazooka” of monetary measures aimed at reviving the nation’s slowing economy and addressing issues in its property sector.
Disappointing Stimulus Dampens Market Optimism
Market anticipation grew ahead of another potential stimulus round, this time focused on fiscal policies, infrastructure, and energy transition.
However, when China’s National Development and Reform Commission briefing fell short of expectations, copper prices took a sharp downturn, with losses surpassing 7 percent after the initial run-up.
Traders had hoped to see a market resurgence similar to the copper price blowout in May, when prices hit a record high of $5.20 per pound ($11,500 per tonne). However, recent market conditions indicate that a repeat of this rally may be increasingly unlikely.
Market Sentiment and Trader Caution
Benchmark Mineral Intelligence notes that the London Metal Exchange (LME) has seen persistent contango during the recent rally, signaling market caution.
This has led to some comparisons with the fund-driven price rally in the second quarter of 2024.
COMEX’s Commitment of Traders report also highlighted an influx of funds into copper, with non-commercial net positions reaching their highest levels since July.
However, despite strong long positions, traders remain wary of any extreme price run-ups, particularly given the higher stock levels at COMEX, which reached 71,000 tonnes compared to just 20,000 tonnes during the May rally.
With copper prices cooling and market sentiment shifting, traders are exercising caution, mindful of the risks associated with over-optimism.
While the market remains on alert for further economic measures from China, it is clear that any future rally will need more robust fundamentals to sustain itself.
