Metal prices surged, with copper prices rising strongly on Tuesday (April 2) local time. The three-month copper futures on the London Metal Exchange recently rose by 1.6% to $9,011 per ton, up 5.8% over the past month. All metals except for lead have risen, with aluminum particularly climbing by 2% to $2,383, reaching its highest level since January, and zinc rising by 2.6%. What’s driving the surge in copper prices? The answer: investors weighing optimistic factory data from China, the world’s largest consumer of copper, and the possibility of production cuts by major Chinese smelters.
Following the official manufacturing Purchasing Managers’ Index reaching its highest reading in a year in March, alongside strong exports and rising consumer prices, investors have grown more optimistic about the Chinese economy. A factory index in the U.S. also unexpectedly ended 16 consecutive months of decline. Analysts at Galaxy Futures wrote in a report that economic data is helping to boost market sentiment, signaling a manufacturing recovery. This trend supports the consumption of raw materials facing potential supply constraints, such as copper.
SP Angel analysts said that improved U.S. factory data has provided some reasoning for optimistic market demand, and further support for the upward trend has come from capacity reductions in China. The market is betting on a tightening market, and futures premiums on the London Metal Exchange have reached record levels.
China produces over half of the world’s refined copper. With processing fees nearing zero, smelters are considering production cuts. Despite solid U.S. factory data strengthening speculation of a slow interest rate cut by the Federal Reserve, which could impact the outlook for commodities. Bond traders have digested expectations that the Fed will cut rates less this year.
