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Contraction in China: 14 Months and Counting

By Jim Williams

Copper prices fell Tuesday after reports that the Chinese purchasing-managers index (PMI) contracted for the 14th-straight month. Caixin Media Company Ltd. and research firm Markit Economics reported the Caixin PMI was 49.4 in April. That is down from 49.7 in March. A reading below 50 signals contraction.

The report was noticed by investors as copper futures for July delivery finished down 2.1 percent to $2.219 a pound. Jessica Fung, a metals strategist at BMO Capital Markets, told the Wall Street Journal that going forward, copper prices could continue to fall “given there are few signs of demand strength.” The silver lining to the story – the red metal is still up almost 4% for the year.

China, however, is the world’s top copper consumer and the metal is heavily tied to the direction of the Chinese economy.

“We can’t worry about what happens in China,” says Jim Anixter, President of A-Z Wire and Cable in Northbrook, Ill. “I have no control over the price of copper, all we can control is what we buy. I don’t know what China’s going to do. I don’t know what our government is going to do…We just have to take it one day at a time.”

We will have more from Mr. Anixter in next week’s column.

Piling On…

China isn’t the only contributing factor to copper’s tumble on Tuesday. Less than stellar numbers of the factory sector in the U.S. fell in April compared with the month prior. And, a stronger dollar, up about 0.7 percent, played a role in trading.

Commodities Giant Glencore Feels the Pinch

Swiss-based Glencore announced this week they have cut their copper and zinc production in the first quarter. The company said it reduced output of copper by four percent during the first three months of 2016 to 335,000 tons. The company says the cuts are part of planned suspensions and reductions in activity at its African mines. Glencore also told investors the cuts were offset by an increase in production in its South American mines.

Perception sometimes speaks louder than reality – the mining giant still cut copper production by four percent!
Be sure to come back next week as we go in depth with Jim Anixter from A-Z Wire and Cable.


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