Why Is Copper Showing Weakness?



China’s Consumer Sentiment Indicator fell

The Westpac MNI China Consumer Sentiment Indicator (CSI) is used to gauge China’s current economic conditions and future outlook. It fell to the lowest level since October 2015. It fell to 111.3 in February—a decline of 3.6 points from January’s reading of 114.9. Four out of five major components that contribute to the Westpac MNI China Consumer Sentiment Indicator fell in February.

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Components of the consumer sentiment indicator

The component “Business conditions, next 5 years” witnessed the largest fall. It fell by 6.7% in February. The real estate sector is one of the largest consuming sectors of copper. It also deteriorated. The housing composite fell 2.1% to a two-year low. The second-largest fall in the five components was seen in the sub-component “Time to buy a major household item.” It fell 4.7%. The component related to “Family finances” had a relatively small decline. The “Family finances, next 12 months” and “Family finances vs a year ago” fell by 3.7% and 1.3%, respectively. However, they’re still holding above February 2015 levels. The “Current business conditions” fell 4.4%. This is 3.1 points higher than the multiyear lows reached in October 2015.

Considering the fact that the growth in China hit a seven-years low in 2015, the recently released consumer sentiment report clearly isn’t a good sign for the Chinese economy. Weakness in the real estate sector and the decline in China’s consumer sentiment indicator have the potential to pull copper prices lower. On February 24, copper fell 0.06% in the LME (London Metal Exchange). In COMEX, copper fell by 0.38%.

Major base metal miners Freeport-McMoRan (FCX), Glencore (GLNCY), BHP Billiton (BHP), and Rio Tinto (RIO) fell by 0.55%, 7.8%, 5.4%, and 7.3%, respectively, on February 24. The Power-Shares DB Base Metals Fund (DBB) rose by 2%. In this series, we’ll explain the price action of base metals and major miners. We’ll also provide an update on the inventory levels of base metals in LME.


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