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Copper: Both Ends of the Spectrum

Copper: Both Ends of the Spectrum

The old saying “In like a lion, out like a lamb” is usually associated with the weather pattern for the month of March. Well, it appears that saying could apply to copper, but for the month of April.

Copper ended the last week of April hitting both ends of the spectrum, roaring to a one-month high before tumbling to a four-week low yesterday to kick off the new month.

The red metal hit its highest in a month at $6,986 a ton on the London Metal Exchange, but fell to $6,710 yesterday, its lowest price since April 4. Copper closed at $6,745 Tuesday – down 0.9 percent.

The chart below reflects the price per pound – down nearly eight cents from the previous week.

Analysts say that the copper price decline was due to concerns about demand from China, where traditionally demand picks up heading into the second quarter of the year.

“We think construction activity is going to be more subdued this year because of the curbs on lending by the Chinese government to control the property market bubble,” Caroline Bain of Capital Economics told Investing News.

According to FocusEconomics latest report, copper prices are likely to bump along below the $7,000 level this year, after performing ahead of fundamentals at the end of 2017.

Give and Take

The market was also influenced by a private survey that showed growth in China’s manufacturing sector unexpectedly picked up in April, brightening the demand outlook in the top user of the metal.

Reuters posted a report this morning showing the Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) climbed to 51.1 in April from a four-month low of 51.0 in March, and topped economists’ forecast for a modest slowdown to 50.9.

But the same survey showed a sub-index on export orders shrinking for the first time since November 2016. An official PMI survey on Monday also showed slower shipment orders last month.

“For the rest of the year, as the export situation may deteriorate, fiscal stimulus and further monetary easing will likely take place so as to protect the 6.5 percent growth target, which in turn will underpin growth for commodity demand,” Helen Lau, an analyst at Argonaut Securities said in a note.

Another factor impacting prices was a stronger US dollar leading up to the two-day U.S. Federal Reserve monetary policy meeting on interest rates scheduled to wrap up today. Analysts expect the Fed will hold interest rates steady, but they will hint at lifting borrowing costs in June on the back of rising inflation and low unemployment.

“There are bullish and bearish factors at play in the copper market these days,” states Andrew Hecht, of Seeking Alpha. “Eventually, copper will either break to a higher high or the bullish pattern will come to an end. However, until that occurs, trading the range in the red metal could offer lots of opportunities for profits. The red metal could continue to consolidate, which make selling rallies and buying dips the optimal approach to the industrial metal.”

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Jim Williams

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