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Cause for Concern for Copper?

Cause for Concern for Copper?

By Jim Williams

Copper steadied on Tuesday, supported by a softer dollar and firm oil, but prices are still within sight of recent lows brought about by a resurfacing of worries over demand growth in top consumer China.

Concerns over copper have mainly centered on China’s economic outlook. Data released recently showed factory output increased slower than expected in April and fixed-asset investment growth eased to 10.5 percent year on year in the first quarter of 2016. Traders say the solid pace of real estate investment last month helped offset some of the negative activity.

The U.S. dollar has slipped in recent days, making dollar-denominated commodities cheaper for non-U.S. buyers. “The dollar helps and the Chinese data was disappointing. I don’t think prices will go back to January lows, but I can’t see what would make prices rise significantly,” Citi analyst David Wilson told Reuters.

“The April data showed that the short-term rebound in economic activity in China has proved to be short-lived,” said Commerzbank analyst Eugen Weinberg. “The credit numbers for April fell. I wouldn’t be surprised to see further weakness in demand and prices.”

“There are signs that some of the recent optimism is receding and there is evidence of a slowdown in some of the order books of the Chinese copper fabricators, which is being repeated in Europe,” Kingdom Futures said in a note. “If this continues there could well be another setback in metals prices generally, and the next month or two could see the markets testing the lows once again.”

Further Reading—Oil and Copper do mix?

Mining.com posted a story about the relationship between copper and oil and how the prices tend to feed off each other. The article points out that the trend may be changing. In fact, London-based research house Capital Economics says the gap between the two will close as the year progresses. In fact, Capital Economics’ predicts the copper price by end-2016 will be $5,500 per ton or $2.50 a pound and closer to $6,000 in 2017. They see oil hanging around today’s mark of $45-$50 a barrel with a spike to $60 by the end of next year.

You can read the entire article here.

We will keep an eye on the Federal Open Market Committee (FOMC) minutes scheduled for release this afternoon (May 18) and let you know if what they decide will have an impact on copper.

 

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