Copper jumped on Monday, rising by more than 2% overnight to a four-week high of $4.30 per pound ($9,470 per tonne) on the CME in Chicago, after China鈥檚 politburo signalled for the first time since 2008 it is abandoning its 鈥減rudent鈥� monetary policy stance.聽
But optimism about the impact of a 鈥渕oderately loose鈥� policy and promises of 鈥渧igorously boosting consumption鈥� faded in afternoon trade with March futures giving up some gains towards the end of regular trading.
The bellwether metal spiked at the end of September after similar positive noises about economic stimulus from Beijing, but remains down nearly 10% since then.
In a , London-based researcher Capital Economics warned that 鈥漨onetary easing in China is far less potent than it used to be [and] there is now limited appetite among households and large parts of the private sector to take on more debt, even at lower rates.鈥�
Capital Economics says that with monetary policy effects likely to be underwhelming, Beijing鈥檚 fiscal policy would have to do the heavy lifting: 鈥淥ur calculations suggest that the share of on-budget spending being devoted to investment is on course to hit its highest since 1987 this year.鈥�
Rising fixed investment in China on this scale is an unalloyed good for metals markets and especially copper given its widespread use in industry, manufacturing and construction.聽
Even so, Capital Economics in a September research report argued that a correction in Chinese construction activity 鈥渨ill be as large as 50% decline from peak to trough鈥� and that most of the correction still lies ahead:
鈥淲hile the green transition and Al-related use will boost demand for industrial metals over the rest of this decade, we expect this to largely be offset by a substantial contraction in demand from China鈥檚 construction sector.聽
鈥淎gainst this backdrop, and with supply proving resilient, we forecast copper and aluminum prices to fall in the coming years and be below consensus expectations during the 2020s.鈥�
Capital Economics forecasts copper would lose touch with the $9,000 a tonne level next year, average only $8,000 by the end of 2026, and continue to drift lower through 2030.