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A Short Sign of Relief for the Price of Copper

By Jim Williams

In a reversal of recent history, copper prices rose Tuesday after strong import data out of China. You read that right – strong import data out of China! The news helped calm concerns – at least for a day – about demand for the red metal from its #1 user.

Copper for March delivery crept over the $2.00 per pound mark on Tuesday, the highest price in almost three weeks.
“Despite headlines suggesting that China’s economy is collapsing, metals demand is actually picking up,” Oliver Jones, an economist at Capital Economics, wrote in a research note.

“Though the risk is to the downside for copper in the intermediate and longer-term, there is a growing chance of a short-term bounce from oversold conditions,” states tED contributor and Forbes.com writer, Jesse Colombo. “After all, no bear market unfolds in a straight line down.”

Description: Monthly
Source: Finviz.com

Colombo looks at a ‘what if’ scenario – as in, What if copper collapses all the way to $1.25 per pound? “$1.25 was an important resistance level in the mid-1990s and a major support level during the financial crisis in early-2009. This key psychological level is likely to draw copper to it like a magnet (similar to crude oil and the $40 level). Though there is a chance of a short-term bounce, the inevitable unfolding of China’s epic credit bubble should continue to weigh heavily on copper.”

Colombo also had something to say about the U.S. dollar rising for many of the same reasons that are causing copper’s bear market. “Rising U.S. interest rates combined with loose monetary policy in Japan and Europe are bolstering the dollar,” adds Colombo. “Europe’s ongoing deflationary crisis is putting more pressure on Mario Draghi to increase the size of the ECB’s QE program, which is bullish for the U.S. dollar. In addition, the bursting of China’s credit bubble and yuan devaluation puts further upward pressure on the dollar and reduces China’s buying power for commodities. I believe that the final capitulation sell-off in copper is still ahead and that no bottom should be expected until it happens.”

Description: Dollar
 Source: Barchart.com

In Other Copper Related News
Copper investors are keeping an eye on possible supply issues for copper after news that the Indonesian government is demanding a $530 million deposit for a new smelter from Freeport-McMoRan, Inc. before renewing the company’s export permit for copper concentrate.

The Chinese New Year is February 8
The upcoming Chinese New Year and an upcoming U.S. central bank meeting are also getting attention from investors. “The uncertain environment, with a lot of turmoil across all asset classes, is making participants keep their cards close to their chest, not putting on risk needlessly,” said Robin Bhar, head of metals research at Societe Generale in London. “Illiquidity ahead of the Chinese New Year is playing an increasing part, so you’re probably getting some squaring up heading towards that period,” concludes Bhar.

Will we see the bottom any time soon? Will the prices go up, down or stay level heading into the Chinese New Year? What impact will the US Federal Reserve have on the price of copper? We don’t like to leave you with more questions than answers, but we will keep an eye on the markets and keep you posted of the ups and downs of the red metal.

 

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