Sharp Deceleration In Electricity Consumption Pricing in Lower Copper Prices

• Since the start of the year, we have seen that the deceleration in the Chinese economic activity combined with the sharp contraction in liquidity (defined as the annual change in the Total Social Financing 12M sum) have been weighing on both domestic and international asset prices.
• In the past decade, analysts have looked at alternative ways of measuring the level of Chinese economic activity (other than GDP or Industrial Production). We previously used the Li Keqiang Index, which is an economic measurement index that tracks China's economy using three indicators – railway cargo volume, electricity consumption and loans disbursed by banks.
• Energy consumption on its own has also been used as a simple proxy for economic growth in China, even though some investors have defined it as 'imperfect' as it could be impacted by several factors external to economic output.
• This chart shows that while being a more volatile time series, China electricity has strongly led copper prices in the past cycle (by 6 months) and the sharp deceleration in consumption in the past 6 months has been pricing in further downside risk in the industrial metal.
• The rally on copper that we observed in the first half of this month seems to have been short-lived and the industrial metal has been consolidating lower in the past ten days after finding a local high at 482.30 on Oct 18^th.
• Key support on the downside stands at 424.51 (200DMA); copper has found support at 200DMA several times in the past three months.

Source: Bloomberg/MNI