Copper price forecast: technicals point to a 16% meltdown

Copper price drifted upwards this week as investors cheered a potential comeback of Chinese demand. It jumped to a high of $3.70, higher than this week’s low of $3.56. Copper remains sharply lower than its highest level in 2022. It has crashed by over 25% from the highest level in 2022.

China real estate stimulus

Copper, often seen as a barometer of the global economy, has moved sideways in the past few days. As I wrote in this article, Beijing is considering delivering more stimulus for the real estate sector. Some of the new measures include reducing downpayments in some cities and changing some of the commissions.

The government hopes to revive the sector, which is the most crucial in the economy. Estimates are that the real estate industry and its value chain account for more than two-thirds of the economy. Still, it is unclear whether the new measures will be effective.

China is an important country for the copper market since it is the biggest consumer of the metal. Analysts believe that the country’s demand will be about 16.13 million tonnes this year. 

Copper demand has been under pressure this year as evidenced by the recent manufacturing PMI numbers. Data published last week showed that the country’s manufacturing PMI dropped to 48.8 in May, signaling that factory output is falling. These numbers signal that the country is facing a K-shaped recovery, where the manufacturing and services sectors diverge.

Still, in the long term, there is a likelihood that prices will likely bounce back in the next few months as supplies remain tight. The world is going through a supply shortage that could last for several years. Demand is also expected to rebound, helped by the electric vehicle industry.

Copper price prediction

Copper has been in a bearish trend in the past few weeks after it peaked at $4.36 on January 18th. The 25-day and 50-day moving averages have made a bearish crossover pattern. Further, copper has formed what looks like a bearish crossover pattern while the Awesome Oscillator is still below the neutral point.

Therefore, there is a likelihood that copper will have a bearish breakout as sellers target the next key support at $3.2450, ~14% below the current level. A move above the key resistance point at $3.87 will invalidate the bearish view.

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