Recent Copper Correction May Be Signalling Softer Growth Outlook

LME copper prices are down 2.5% m/m in July to date after falling 4.6% in June and even though they are off their May peak they are still up 11% y/y. Copper is often a good indicator of global industrial production growth, as it is a common input across sectors, and this year’s rally is signalling that there could be a pick up in the data before IP slows again with trade flows following, which is important for Asia. Other indicators aren’t as positive though.

Global IP y/y% vs copper prices

Source: MNI - Market News/Refinitiv

• Copper prices may be overstating IP strength given supply disruptions contributed to prices rise. Uncertainty over China’s demand, given ongoing property woes, disappointing data and rate cuts, weighed on prices in June/July. But the overall demand outlook remains robust as the electricity sector accounts for almost 30% of global copper consumption, according to ANZ estimates. With continued rollouts of renewables, EVs and infrastructure that seems unlikely to change for now.
• The JP Morgan Global manufacturing PMI has indicated muted activity growth through 2024 with a slight pickup in Q2. The index is up almost 2 points since end 2023 though. The PMI as well as economic surprise indices are not as optimistic as copper prices about the outlook for IP growth. Preliminary US/European PMIs released today should give an indication before the global PMI is out August 1.
• Global IP growth as measured by the Dutch CPB improved to 2.3% y/y in April from 1.5% in January, close to the historical growth rate. But 3-month momentum has slowed since September last year and unlike copper prices is signalling that growth will be unlikely to improve further.
• There has been some improvement in global trade growth this year after a lacklustre 2023. In April, 3-month momentum at 4.8% annualised was its highest since August 2022 (May due July 25).

Source: MNI - Market News/Refinitiv