Copper Prices Decline as China's Stimulus Impact Diminishes

Copper prices have recently taken a dip, reflecting the current state of the market as the effects of China's stimulus measures begin to fade. On Thursday, trading was notably thin due to a week-long public holiday in China, the world's largest consumer of copper. This situation has left investors and traders eagerly awaiting further signals regarding the market's direction.

As of 0407 GMT, three-month copper on the London Metal Exchange (LME) fell by 0.3%, settling at $10,056.60 per metric ton. Other metals also experienced slight fluctuations; lead decreased by 0.1% to $2,150, while tin remained nearly unchanged at $33,890. In contrast, LME aluminium saw a modest increase of 0.1%, reaching $2,681.50 a ton, and nickel edged up by 0.5% to $18,235. Zinc also rose by 0.4%, now priced at $3,187.50.

In September, China introduced a series of policies aimed at bolstering its economic growth. These measures included lowering interest rates, reducing mortgage rates, injecting liquidity into banks, and easing restrictions on home purchases. As a result, LME copper experienced a significant rise of 6.4% in September, marking its best monthly performance since April. The price even peaked at $10,158 a ton on September 30, the highest level observed since June 7.

However, analysts are now suggesting that the immediate impact of these stimulus measures on copper prices is waning. Matt Huang, an analyst at BANDS Financial, noted, "The policy stimulus effect to copper in the short-term is almost finished. We saw the stock accumulation in China for the first time in September." This statement highlights a shift in market dynamics, as copper inventories in warehouses monitored by the Shanghai Futures Exchange rose to 141,625 tons on September 30, marking the first increase since early July.

Interestingly, copper stockpiles had been on a downward trend for 12 consecutive weeks since July, as prices fell from a record high above $11,000 in May to around $8,700 in August. The timing of this increase in stockpiles coincided with China's traditionally stronger consumption season, which begins in late September. Many buyers were reportedly stockpiling copper in anticipation of the National Day holiday from October 1 to 7.

Looking ahead, Huang expressed concerns about a potential price correction following the holiday, stating, "The chance to have a price correction (after the holiday) is high." This sentiment is further supported by the LME cash copper contract, which was trading at a discount of $141.16 a ton against the three-month contract on Wednesday, the largest discount since July 17. This indicates a lack of tightness in near-term supply, suggesting that the market may face challenges in the coming weeks.

While the recent stimulus measures from China provided a temporary boost to copper prices, the market now appears to be entering a phase of adjustment. Investors and traders should remain vigilant as they navigate this evolving landscape, keeping an eye on supply levels and potential price corrections. Understanding these dynamics is crucial for making informed decisions in the commodities market.