Copper Prices Could Suffer If China Cuts Spending
???? Fundamentals
Copper futures are off recent lows near the $3.45 mark on speculation that recent price declines could spur physical buying from China. Demand has been better since the Chinese New Year celebrations have ended. Whether those purchases were simply making up for the lost week or a sign that demand is actually starting to tick up on its own remains to be seen.
There have been mixed signs from China over the past several weeks, which has caused a bit of confusion among base metal traders. There is a leadership transition at the annual National People’s Congress, which concludes on March 17. The Congress usually results in an expansion of public works projects, which could be favorable for Copper demand. However, the state of the Chinese economy is uncertain.
Recent economic data has been mixed and can be seen as neutral. There has been increased speculation that the NPC’s spending may actually be reigned in, which could be viewed as negative for demand. LME stocks have been on the rise, which may be signaling that demand from construction and manufacturing may be weaker than previously thought, resulting in stockpiling of the metal.
???? Technical Notes
Turning to the continuous chart, we see the May Copper futures contract rebounding from technical support at the 3.4500 mark. Prices are now approaching minor resistance at that 3.5350 level. A move above this resistance level could result in sideways trading for the foreseeable future.
On the downside, if prices are unable to hold minor support near 3.45, prices could test the 3.30 level on the downside, which can be viewed as significant support. Failure to hold 3.30 could not only bring heavy selling pressure, but also signal the beginning of a long-term downtrend. The downward crossover of the 20-day moving average through the 50 and 100-day averages could be seen as negative, longer-term. Currently, the RSI remains oversold, which could be supportive of prices in the near-term.
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