Can copper extend its rally after hitting a near seven-year high

Copper broke out of a nearly four-month swing and broke several resistance levels to hit a fresh seven-year high as investors' appetite for risk and a recovery in Chinese economic data.But does the recent broad swing in copper prices signal a change of direction?

Pay attention to the following trend of copper price, my view is mainly in the following aspects:

International factors

U.S. President-elect Joe Biden stressed the importance of urgent action following grim employment data on December 7.Meanwhile, congress has made progress in negotiations on an economic stimulus package, with lawmakers agreeing on a plan to stimulate spending.

The implementation of the plan will stimulate an increase in inflation expectations, and commodities and mining-related stocks are effective ways to hedge against such an Increase.

While this applies to all commodities, copper has benefited from more specific factors that have made it a favorite investment for long-term investors.There will also be more dollars flowing into the market and the dollar index will remain low, supporting copper prices.

Vaccine to promote

In November, optimism over the development of COVID-19 vaccines by several global vaccine companies spurred strong gains in global stock and commodity futures prices.The UK is expected to have a mass vaccination programme by Christmas, while the US is likely to have an accelerated COVID-19 process by the end of the year.That has boosted risk appetite and boosted commodity futures prices.

Consumption

The downstream consumption is generally better than the market expectations, and domestic inventories continue to fall. The copper inventory in the previous period is less than 100,000 tons at present, and the spot premium remains high.In November, copper processing enterprises reported that orders improved, and the operation rate of fine copper rod and copper pipe enterprises rebounded to different degrees month-on-month and year-on-year. SMM estimated that the average operation rate of Chinese copper processing enterprises in November was 74.91%, with a growth of 1.67 percentage points month-on-month and 3.2 percentage points year-on-year.

In the end consumer sector, the auto industry continues to be strong, with the Federation of Automobile Associations expecting average daily retail sales to increase 3% month-on-month and 5% year-on-year in November.Home appliances exports to maintain strong, air conditioning production and sales better than seasonal performance.

The supply is limited

Decarbonisation and electrification are the main drivers of the future metals market.Last week's SMM annual non-ferrous Metals conference was generally bullish on copper, as China and Europe have committed to emission reduction targets, clean energy and electric vehicle development will greatly increase the demand for copper and aluminum, but the lack of large mines into production, supply growth is limited, the market maintains a tight balance.

Conclusion: After rising for half a month, the upside resistance of copper price has increased. However, as the United States, Japan and other countries are planning to implement stimulus programs, the basic pattern of easy liquidity remains unchanged and domestic consumption is better than expected, it is not difficult to see that copper price still has the momentum of rising.