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Why Did Copper Ignore Stimulus from China?

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Dec. 4 2020, Updated 10:53 a.m. ET

News from China drove the market

Copper prices experienced a roller coaster ride on Monday after important market-moving news from China. Copper started the day with weak sentiment from China’s weekend G20 meeting but later found support from the People’s Bank of China stimulus.

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Poor start because of a disappointing G20 meeting

Even though copper gained on Friday and ended last week with a gain of 2.1%, Copper prices showed weakness for the first part of the trading day on Monday. Prices even drifted to 2.10$ per pound, a decline of 1.0% from the previous day’s close. This weakness was because of a lack of new measures to boost the economy from the weekend G20 meeting. Weakness in copper prices was also driven by a selloff of Chinese shares on Monday. As a result, the Shanghai Composite fell 2.9% to 2,687.8 points, a decline of 79.4 points from the previous close.

Copper prices reversed after stimulus from China

After Monday’s announcement of a reserve requirement cut by the People’s Bank of China after the Chinese market closed, copper prices started recovering, as the graph above shows. Economic stimulus in China should have a positive impact on copper prices. China is the world’s largest copper consumer. Even though copper prices surged right after the release of news regarding China’s stimulus, the gains were very limited. The market realized that the stimulus couldn’t boost demand growth.

Copper on Comex rose 0.35% on Monday. Copper on the London Metal Exchange fell 0.23%. The base major base metal miners, Freeport-McMoRan (FCX), Glencore (GLNCY), Alcoa (AA), and BHP Billiton (BHP), rose 2.7%, 4%, 0.68%, and 0.22%, respectively, on Monday. The SPDR S&P Metals & Mining ETF (XME) rose 4.3%.

The next part of this series explains the performance of major base metal miners on Monday.

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