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$6,000 is the New $7,000 – Copper Prices Continue to Tumble

By Jim Williams

Copper prices fell below $6,000 per ton for the first time in over five years on Monday. The metal fell to as low as $5,966 on Monday, but was back up over $6,000 in afternoon trading on the LME. Regular readers may remember the post we did last year stating the psychological baseline for copper was $7,000. That figure would be welcomed today!

One expert predicts we are still $1,000 away from any serious damage. “The pain would be more acute and unsustainable at $5,000 per ton,” Robert Edwards, managing consultant for mining costs at consultancy CRU says. He adds that at $5,000, a quarter of the world’s producers would be bleeding cash and we would expect “tangible” cutbacks, forcing copper producers to cut into production plans.

Copper trading was down 15.78% in 2014 and closed the year at $2.8255 per pound. The latest report shows the active three-month March futures contract is trading at $2.7245 after hitting a low of $2.70 this week. It is early, but copper is already down another 3.6% so far in 2015.

Daniel Hynes, ANZ Commodities analyst says while 2014 did see a selloff of base metal stocks, he’s forecasting a reasonable performance ahead for base metals in general. “We feel the base metals will hold up relatively well to this current sell-off, although we will see continued bouts of that during the year. But over the medium term, we definitely think they’ll be one of the better performing commodity subsectors.”

Andrew Hecht writes in Seeking Alpha, “Below $2.72 per pound, copper could fall rapidly. The next level of support lies at the December 2008 lows of $1.2475, which is less than half the current price of the red metal. Let us remember that during the same period in 2008, crude oil traded down to $32.48 per barrel. A few short months ago, no analyst on earth would have predicted oil trading at its current price, much less those lows. Today many, if not most, analysts are looking for a test of crude oil in the $30s. The downside in copper is scary and the red metal looks feels and smells as if it is about to dive off the edge of the cliff it teeters on.”

You can read his entire article here.

This article tells forecasters the sky may not be falling and that “it wouldn’t take much to turn markets around and volatility is more likely than a straight-run decline.”

Dr. Copper – Can We Get A Second Opinion?
Copper is said to be the metal with a Ph.D. in economics for its ability to predict the future of the global economy. Well, the prognosis isn’t looking great. “Copper has been historically fairly decent envisioning what’s to come in the economy,” states Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “It doesn’t like what it sees. The market is very worried about the state of manufacturing in most parts of the world.”

According to economist estimates, growth in China, which accounts for more than 40 percent of demand for copper, will slow to 7 percent in 2015 from 7.4 percent last year making it the weakest since 1990.

We will continue to monitor the market and hopefully have better news throughout 2015.

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