By Raul de Frutos
Like most industrial metals, copper saw an increase in June. However, the metal is still lacking the strong upside action we have seen in other metals and it continues to struggle near the $5,000 per metric ton mark on the London Metal Exchange.
The latest trade data showed a huge spike in Chinese copper exports, which increased by 256% in May from a year earlier. This raises fears about domestic demand. Domestic production is also rising strongly, up 7% year on year in May. With these figures, it's tempting to view May's export surge as a warning sign that the Chinese market is saturated.
In addition, Chinese manufacturing data came in weak in June. The Caixin Manufacturing PMI, which focuses more on small-to-medium-sized private firms, stood at 48.6 in June. That reading missed estimates and was the weakest number since March.
Uncertainty Still Looms
Given the disappointing industrial data and the ongoing economic uncertainties after the U.K.'s decision to leave the European Union, the market is expecting more economic stimulus from China. That stimulus, if it happens, will be critical for copper prices to finally pick up steam.
On a side note, although most people focused on the export surge, China's imports were robust. China has imported 1.77 million mt of refined copper so far this year, up 24% from the same period last year. Even with May's high exports, net imports are also up by 22% for the first five months. That gives copper bulls hopes that China is starting to work off its previous glut.
But to make this issue even more complex, inventory levels also rose sharply last month. Copper warehouse levels in the LME system increased by almost 40% in June. Along with the LME copper inventory, bonded copper stocks held in free trade zones in China have climbed this year. Higher inventory levels are, perhaps, limiting the upside potential of copper prices.
Although copper rose in June, the outlook remains neutral, and due to all of this uncertainty, we could continue to see choppy price action in the coming months.