Copper is one of the only Commodities been given the delineation of Doctor; a privilege and honour out of sheer respect as being one of the best gauges for global economic growth and specifically, temperature of the Chinese economy. In a very simplistic way, purely top down, the fate of Copper’s demand growth rests predominately on outlook for China. Of course, one needs to take into consideration physical demand/supply and inventory picture, which supersedes any top down analysis, but the tail winds or macro winds come from the macro picture in China. So according to Dr. Copper, what is it telling us of the state of the world as we see it?
LME Copper price has been stuck in a range of $5800-$6200/tonne since the Trade Wars started in earnest in June 2018, after briefly touching highs of $7200/tonne in June 2018. As Trump waged economic war on China, weaponising the dollar causing disruption in global supply chains, he managed to choke China’s main engine of growth. This dramatic slowdown caused a ripple effect in the entire world judging by Singapore, Korea, Emerging Markets data felt all the way across Europe. China is the world’s economic growth engine, whether we like it or not. If it slows down, the effects will be felt everywhere given its vast imports (taking in raw material) and exports (producing finished goods). Germany is almost at the cusp of a recession as seen by latest PMI numbers. For 3 decades, China’s insatiable demand for German cars, machines and engineering tools has been a steady engine (no pun intended) of growth for Germany. China is only a small part of its 3.4 trillion Euro economy, but it is one component that kept growing year after year, offsetting the general European slowdown evident. In Q2’19, it shrunk by -0.2% GDP, and Q3’19 was expected to be down -0.1%, but printed +0.1% GDP (avoiding recession by a sliver), but Q2’19 was revised down by 0.1%.
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