Copper bounces on stimulus bets after China sinks into deflation

COPPER prices recovered on Wednesday (Aug 9) from a one-month low after data showing China fell into deflation fuelled hopes for more stimulus in the world’s top metals consumer.

Three-month copper on the London Metal Exchange (LME) was up 1 per cent at US$8,432 per metric ton by 1415 GMT, after hitting the lowest since July 7 on Tuesday.

China’s consumer sector fell into deflation and factory-gate prices extended declines in July, data showed on Wednesday, raising more pressure on Beijing to boost policy stimulus.

“We had another piece of bad news with the headlines showing deflation, raising expectations that the Chinese government will eventually have to step in and do something to arrest this slide,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

The market is wary, however, after prices rallied several times over the past months and were disappointed with modest stimulus measures, he added.

“There’s been a lot of false starts over the last six months so the bounces we’re seeing may become more and more shallow simply because the market wants to see the facts before they get too carried away,” Hansen added.

The most-traded September copper contract on the Shanghai Futures Exchange (ShFE) closed down 0.4 per cent at US$9,517.20 per metric ton.

Supporting LME copper prices was arbitrage activity as traders sold ShFE copper and bought LME, Yuting Du at broker Marex said in a note.

Also bolstering industrial metals was a retreat in the dollar index on improved risk sentiment and dollar selling by some Chinese banks, making greenback-priced metals cheaper to holders of other currencies.

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The premium of the LME cash zinc contract over the three-month contract has surged to US$30.25 per metric ton, the strongest since late April, having moved from a discount of US$20.25 in mid-July, indicating nearby supply tightness.

LME aluminium rose 0.3 per cent to US$2,208 per ton, zinc advanced 1 per cent to US$2,480.50 and tin added 0.5 per cent to US$27,435 while nickel fell 0.8 per cent to US$20,685 and lead was little changed at US$2,124.50. REUTERS