By Jim Williams
Copper opened this morning a shade under $2.10 a pound. That is down 0.2 percent for three-month copper after the red metal experienced higher trading earlier Tuesday. Experts say the stronger dollar here in the states is to blame. Other contributing factors include the forecast for China’s economy and what appears to be the never-ending threat of the Feds jacking up the interest rate.
According to China’s National Bureau of Statistics, the world’s largest copper consumer could experience an improved outlook with annual growth in industrial output growing to 6.3 percent in August. That is up from a flat 6 percent in July.
While the forecast appears good in China, no one is quite sure what the Fed will do when it meets next week.
“‘Jittery’ does not even begin to describe the current market,” writes analysts at Marex Spectron. “Expect traders to continue to trade on a three-hour time horizon awaiting the next headline about what the Fed may or may not do with rates in September.”
“Any price rally could continue to be limited this year,” Raul de Frutos, from Metal Miner, wrote earlier this week. “Especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.”
“Over recent sessions, copper has begun to look a lot better to me as a candidate for a long-side trade,” says frequent tED contributor, Andrew Hecht, from Seeking Alpha. Hecht points to massive copper inventories in China and around the world, the fact that copper is above production costs, energy and lower oil and gas prices as keys indicators.
“There are three compelling reasons why I think that copper is ready for a relief rally that will take it back to the higher end of its trading range. “Base metals. Technicals. And, risk-reward,” states Hecht.
“Copper has been an outlier in the base metals sector in 2016,” continues Hecht. “Copper has been a laggard, and while the fundamentals remain weak, it is the only nonferrous metal that has moved lower than the price on December 31, 2015.”
Regarding the technical side of copper, “The bottom came in January when many raw material markets fell to multiyear lows. Since then, copper recovered but other commodities, and more specifically metals, have done much better.” Hecht predicts that “the odds are copper will move back to the higher end of its trading range between the $2.20 and $2.30 per pound levels.
“Risk-reward…No one gets the market right all the time. No batter gets a hit every time at the plate. That is why it is important that risk-reward expectations must reflect that losing trades are inevitable. When you risk $1 to make $2, if you are correct in your market calls 50 percent of the time, you are a winner. That is why a risk-reward ratio of 1:2 is attractive to me. I see that in the copper market today. Given the current technical indicators, risking 5 cents to make 10 to 20 cents makes lots of sense.”
Further Reading
The Case for Copper: A port in the coming storm
Copper finds some support
Tagged with tED