ANZ says if power grid spending in China rises it will boost copper prices. Photo: Bloomberg
Copper has just come off lows last seen since 2009 – and ANZ is calling the bottom, believing a pick-up in demand from China is set to give prices a massive boost.
The red metal traded around $US4325 per tonne on January 16 – its lowest price since 2009. It's currently recovered 5.5 per cent to $US4565 per tonne.
"I think the picture's going to remain somewhat cloudy, but it does feel like we're finding a bottom here," said ANZ commodities analyst Daniel Hynes.
ANZ's current prediction is for copper prices to increase 27 per cent by the end of the year.
"If we do see volatility in other global asset classes ease a little bit then we could see copper prices start to inch up a little bit."
ANZ's current prediction is for copper to increase 27 per cent by the end of the year to $US5500 per tonne, which is where it was trading in July last year.
Mr Hynes said that copper had suffered along with other metals in the recent commodities and equities rout.
"It's taken a bit of a beating . . . and it's not going that great."
China's economic performance particularly weighed on copper, said Mr Hynes, given that China is the largest global consumer of the metal.
Copper is also Australia's sixth-largest resource export.
However, one reason for the recent improvement in copper was strong December import data from China, showing that copper imports had risen 30 per cent year-on-year to 480,000 tonnes.
"The strong read on imports, combined with relatively unchanged inventory – at least of the visible type – seemed to suggest that underlying demand was better than what the market was expecting," said Mr Hynes.
"When you consider that inventory didn't change – in fact, they were slightly down for the month – there must have been some underlying pick-up in demand."
However, said Mr Hynes, Chinese manufacturing data released on Monday was an indication that Chinese growth could not necessarily be counted on.
China's factory activity skidded to a three-year low point in January, adding to further gloom about the state of the world's second-largest economy.
The January manufacturing purchasing manager's index came in at 49.4, slightly below consensus estimates for a 49.6 reading and ticking down from December's 49.7 figure. It was the weakest result since 2012 and marked the sixth straight month in contraction territory.
But despite that Mr Hynes said he was confident about the ANZ's forecast.
"It's a fair jump to $US5500.
"But we think the market's relatively tight, maybe just in a slight surplus but near enough to balance.
"We think prices look pretty solid at the $US4500 per tonne level."
Chinese electrical demand was a prime driver of copper, he said.
"If we do see the pick up in spend on the power grid in China, which consumes more than half of the world's copper, then we would expect to see the price in the second half of this year really improve."