Is Copper Set For A Correction In 2022?

• In the past 6 months, copper prices have stabilized around 430 despite the rise in Covid uncertainty this winter and the significant deceleration in Chinese economic activity.
• China Li Keqiang Index, which could be considered as a proxy of the Chinese real economic activity, has been falling in the past year and is still pricing in significantly lower copper prices.
• The top chart shows that the Li Keqiang Index has strongly led copper prices by 6 months in the past 15 years (Index inception).
• In addition, the plunge in the Baltic Dry Index, which is down over 75% since its October high, is also pricing in lower prices in the industrial metal.
• Even though most of the fall was attributed to the winter shipping bottlenecks and the significant deceleration in Chinese economic activity, it has also historically acted as a strong leading indicator (6 months) of copper prices in the past cycle (bottom chart).
• Analysts expect the global refined copper market to move into surplus in 2022, which could also increase the downward pressure on the commodity.
• Will the easing policy from China be enough to maintain copper prices elevated in the medium term?
• Copper broke below its 200DMA at 438.80 last week; next ST support to watch on the downside stands at 422.85, which corresponds to the 23% Fibo retracement of the 205.90 – 489.80 range.
• Key support remains at 400; the industrial metal found support several times at that level last year.

Source: Bloomberg/MNI