Copper price on an upward trend as China reveals its 5-year plan

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed in the… read more.
on Nov 21, 2020
  • China's demand for copper rises due to the stability of its economy and its 5-year plan.
  • Peru's production volume is expected to remain low over the coming months.
  • The relatively weak U.S. dollar continue to create a favorable environment for commodities.

Copper price has been on an upward trend after dropping to ~$2.09 in April this year. It is currently trading at $3.23, which is the highest mark since 2018. A relatively weak U.S. dollar, stable Chinese economy, and China’s tech-heavy 5-year plan have contributed to the bullish trend. Besides, production volume in Peru is likely to remain low for a while.

copper price

The relatively weak dollar creates a favorable environment for precious metals

In March, the U.S. dollar was at its highest price level this year. At that point, the dollar index was trading at ~$99.09. Since then, it has been on a downward trend. Currently, it is trading at $92.23, which is a 2.13% decline from November’s highest price level of $94.19.

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Just like the other major commodities traded globally, copper price is in dollars. When the dollar trades lower, buyers dealing in other currencies are able to purchase more copper. As such, the current dollar environment is apt for those looking to trade precious metals.   

Volumes in Peru’s copper mines are below the normal levels

There has been instability in Peru’s copper production; an aspect that has resulted in high copper price. Peru is the second-largest producer of copper after Chile. The mining industry in the country has managed to push past the current political unrest and the coronavirus pandemic. However, analysts expect the slow output growth to continue.

Regarding this matter, the leader of the country’s Institute of Mining Engineers, Victor Gobitz said, “It’s going to take some time to get back to last year’s levels…The priority isn’t to produce more, it’s to become more financially robust.”

China’s demand for copper rises amidst increased industrial production and its 5-year plan

China is the largest consumer of copper. The country purchases this metal for an array of uses in its electronic communications, construction, and machinery manufacturing sectors. As such, the stability of its economy will yield a higher demand for the metal, which will result in the rise of copper price.

After reaching a low of CNY3216.99, China’s Shanghai Composite Index has taken an upward trend. It is currently trading at CNY3377.92.

Shanghai Composite Index

Besides, data released by China’s National Bureau of Statistics on Monday showed that its industrial production YoY rose by 6.9%. The figure was higher than the expected 6.5%. The high industrial production in the country means that there is a high demand for copper, which is good news for those who are keen on the movement of copper price.

At the same time, China has unveiled its 5-year plan. The key pillar of this plan is technology. The Middle Kingdom is striving to be a powerhouse in matters of technological innovations. The embedded activities will largely revolve around the nation’s machinery manufacturing, electronic communications, and construction sectors. Based on the fact that these industries are large consumers of copper metal, its demand and price are likely to continue rising.   

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