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Copper Bounces Around Waiting on the Fed

By Jim Williams

The price of a pound of copper continues to fluctuate as investors interested in the red metal wait to hear what the Fed will do today. Will they hike up the interest rate as expected? Or, will they keep it status quo until their next meeting?

If yesterday’s activity is any indication, all bets are on the rate going higher.

Copper prices climbed for a third straight day Tuesday, adding 1 percent to $2.65 a pound, on expectations of stronger demand from China. A higher U.S. dollar ahead of Wednesday’s decision from the Federal Reserve put a lid on any further gains.

The majority of experts expect the two-day meeting to end with a rate hike of a quarter percentage point. Investors will still be watching the post-meeting press conference for clarity with respect to future hikes and what concerns remain on the Fed’s radar. The expected increase would give the U.S. dollar a shot in the arm, therefore making metals depending on a weaker dollar, i.e. copper, become less buyer friendly.

There are a couple of items to report out of China that should be positives for the price of copper. First, China released data on Tuesday showing its economy got off to a strong start in 2017, supported by bank lending, infrastructure spending and a boost in private investment. And in other major news out of China, Premier Li Keqiang told a news conference at the closing of the National People’s Congress that “China does not want to escalate a trade war with the U.S. That wouldn’t make our trade fairer, and that hurts both economies. China hopes that no matter what bumps this relationship may run into, we hope this relationship will continue to forge in the right direction.”

“A lot will depend on what the Fed does,” said Citi analyst David Wilson. “But the demand signals from China are improving, the data was positive.”

The future of copper looks bright according to Antofagasta, a mining group based in Chile. They say higher copper prices are here to stay! They point to the usual suspects – demand in China, a lack of new copper mines (and strikes at two of the world’s largest), supply cutbacks and the Trump administration’s promise of renewed infrastructure spending.

“To the extent there’s more growth in the U.S. and more public spending that will also have an impact on commodities,” states Ivan Arriagada, Antofagasta’s chief executive.

To add some validity to their statement, Reuters reported yesterday that talks to resolve the now 35-day old strike at Chile’s Escondida Mine, the largest in the world, is going nowhere. The union representing the 2,500 striking miners released a statement saying workers will “maintain the strike for an indefinite amount of time.”

And just this past Friday workers walked out to the picket line at a mine in Peru to add to the woes of copper producers, but support higher copper prices.

“Copper is exploring the bottom end of its trading range that has been in place since early 2017,” states frequent tED contributor, Andrew Hecht, of Seeking Alpha. “My bet is that it holds and once again challenges higher levels in the months ahead. My stop is below $2.32 per pound, but I am reasonably confident that the price will not challenge that critical support level.”

 

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