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Copper Continues to Climb

By Jim Williams

Copper has had quite the run since we last met. The price per pound of the red metal hit a two-year high on Friday, topping out at highs of $2.92 before settling a little as the market closed on the final day of the month.

Copper Chart by TradingView

The two-year high happened after reports surfaced that China is considering banning imports of scrap metal starting at the end of next year. The ban will reportedly cover scrap that contains wires and motors, which could amount to about 300,000 tons of China's 3.35 million ton scrap import total.

Two conflicting reports out of China to start this week haven't done much to slow down copper's momentum. The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI), which focuses on smaller, private companies, released late Monday (early Tuesday in China) rose to 51.1 in July, above the 50-point mark that separates growth from contraction, and well ahead of the 50.4 in June. 

While growth in China's manufacturing sector cooled slightly in July, a government-led infrastructure push kept construction expectations humming. The PMI reading on the construction sector showed an uptick to 62.5 in July from 61.4 in June. This helped push copper higher and keeps China on track to meet its economic growth target of 6.5 percent for the full year.

A weaker U.S. dollar is another factor when it comes to the recent climb in copper. The dollar index was down 2.9 percent in July, and copper futures for September were up 6.7 percent for the month.

“A big reason for the rally: Production has been falling from last year's levels,” wrote BlackRock analysts. “This is a result of firms cutting capital expenditures after multi-year price slides. We see signs that reduced supply and increased demand may be more than temporary and are likely to help keep industrial metals prices stable from here. Metals and mining firms have been improving their balance sheets by reducing debt and decreasing investment in additional production capacity,” the BlackRock analysts continued.

“Constructive global macro data should keep the market excited for the next few months, but sell-off pressure may also build as the market moves into weak demand season,” Citigroup analysts wrote. “The third quarter looks set for a net draw, but the market could see a tight balance for the full year.

“Copper is often a bellwether commodity, and many market participants call the red metal Dr. Copper as it diagnoses the health and overall state of the global economy over the course of history,” points out frequent tED contributor, Andrew Hecht, of Seeking Alpha. “At the end of July, copper was trading at the highest level since May 2015, and alongside crude oil and iron ore, the base metal is telling us that things are looking up when it comes to the demand for raw materials.”

Further Reading
Seeking Alpha Article – Copper Prices Are Likely To Continue To Soar



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