Terrible Chinese factory data is further hurting copper prices

Copper prices

While precious metals such as gold, silver, and palladium have been doing extremely well over the past couple of months, the same cannot be said for industrial metals. Commodities that had previously hit record highs in the year such as iron have just as quickly tumbled back down, giving back most of their gains.

Another crucial metal, copper, has also seen its price fall as demand for the red metal falters amidst China’s weakening economic data. Monday saw prices of copper fall even further following new manufacturing data that showed more signs of a weak economy from the country.

Copper futures in New York were trading at $2.638 per pound, down more than 2% for the day and eliminating any of the meager gains the red metal has seen so far in 2019. While copper has just recently recovered from hitting a two-year low, today’s decline was the last thing that copper optimists were hoping for.

Chinese manufacturing data for the month of August was released on Monday, with the National Bureau of Statistics showing a 4.4% rise in factory output. This was well below expert’s forecasts and happens to be the lowest reading since 2002. With Chinese manufacturing growth declining to a 17-year low, copper miners around the world are getting worried.

CEO of the world’s top copper producer, Octavio Araneda at Codelco, said that “Everything indicates that the price of copper will not improve next year. The trade was is difficult to predict,” adding that she expects prices to remain depressed throughout 2020.

This decline came as an unexpected surprise, especially since prices for copper had recently hit their highest level in over a month last week as investors remained hopeful that demand might rise should trade tensions between the U.S. and China calm down a little. At this point, there has been so much back and forth that investors shouldn’t get worked up over every little development, but prices continue to remain volatile.

In particular, the Chinese government decided to exclude some U.S. agricultural products from tariffs as both sides made conciliatory gestures. This also included China’s renewal to purchase U.S. farm goods while Washington decided to delay a tariff increase on certain Chinese goods by another two weeks.

The future outlook for the red metal doesn’t look that great, but there is some reason to be optimistic in the long term. Copper remains an important component in both electric vehicles as well as the manufacturing of green energy technologies such as solar panels and wind turbines.

With demand for green energy alternatives continuing to rise as major energy companies promise to transition more of their overall output to renewable sources, copper is expected by some analysts to even hit a deficit in the upcoming years. While this would see prices rise, this situation isn’t expected to happen anytime soon.

Copper has historically been a strong predictor of future recessions, since the industrial metal is closely correlated to the economic health of China, which is the world’s largest consumer of the red metal. Many investors pay close attention to the price of copper, using it as one metric that could support the potential of an upcoming recession in the future.