Copper fell with the broader market earlier this month as the red metal sank to its lowest point since August 14 in the opening days of October. Yet, copper futures are faring better since and appears immune to recent risk aversion that is putting pressure on the equity space. Through Thursday afternoon, copper futures are trading 1.25% higher versus the 0.72% drop in the Nasdaq 100 index.

COPPER FUTURES (DAILY PRICE CHART)

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Chart created with TradingView

As discussed in recent months, market imbalances appear to have driven much of the initial post-Covid rally. While the supply side is seeing some relief after LME warehouse levels for copper more than doubled in the last four weeks, copper futures remain near multi-year highs. This suggests demand may be outpacing the supply side.

COPPER VS LME COPPER WAREHOUSE STORAGE

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That said, the demand side of the equation focuses on China – the world’s largest importer of copper. A historical correlation between low copper prices and Chinese copper imports exist. However, imports have climbed to record levels in recent months. The likely reason: China’s government looks to focus on infrastructure investment as a weapon against Covid impacts.

China may be benefiting from its early position in the Covid-19 pandemic as the country now has the virus under control. China’s upcoming Q3 GDP print may supply the next catalyst with economic growth set to cross the wires at 3.2% on a quarterly basis, a healthy figure compared to emerging market peers.

DAILYFX ECONOMIC CALENDAR - CHINA

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Source: DailyFX Economic Calendar

Moreover, the IMF recently updated its growth projections this week. And while the forecast sees the worst downturn since the Great Depression, global output is now expected to drop by 4.4%, up from a 5.2% decline. China, in fact, is the only emerging market country forecasted to expand in 2020 and is helping to prop up the global figure. The IMF also noted:

“Its (China’s) exports recovered from deep declines earlier in the year, supported by an earlier restart of activity and a strong pickup in external demand for medical equipment and for equipment to support the shift to remote working.”

Source: International Monetary Fund

A second wave in China is likely the primary threat to copper’s bullish run. So far, China appears to be keeping any resurgence under control, however. On the contrary, a second wave in copper producing nations, such as Chile, could produce supply disruptions and boost the metal further.

CHINA - DAILY NEW CASES (7-DAY MOVING AVERAGE)

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Source: Worldometers.info

For now, Chinese demand is likely to drive price action in the short- to mid-term. Focusing on infection rates, along with the upcoming GDP data should be front and center for gauging copper's direction in the short term.