By Jim Williams
Economic news out of China pushed the price of copper down for the second straight session. Chinese demand for copper falling below expectations is said to be to blame.
Just last week, the red metal gained almost 5 percent to climb over $5,000 a ton, copper’s highest in over a month, as investors came back to copper after an apparent stabilization in China’s economy. Investors are now going the other way, as demand doesn’t appear to be what they thought it was. Bloomberg reported that copper stockpiles in London Metal Exchange warehouses jumped to the highest volume since March 21 on Monday.
“Going back to January everybody was extremely bearish about China and they are way too optimistic now,” Oxford Economics analyst Dan Smith told Reuters. “We’re going to see a significant pullback over the next month or so, possibly over the next couple of weeks.”
Much of the rise was due to short-term speculators and funds in China, traders said.
“The move to cap the trade surge suggests that China’s enhanced credit liquidity may soon be curtailed,” Smith continued. “This, together with China’s upcoming Labor Day holiday (May 1), should see a short-term pullback in trade activity and commodity prices.”
The Fed Meetings Wraps Up Today
Now, all eyes are on the Federal Reserve as it wraps up its two-day meetings today.
Traders expect the Fed to keep interest rates on hold. They also predict only a 20 percent chance the rate might go up when the Fed gets together again in June. Regardless, investors will pick apart any announcement for clues as to the future direction of rates and the dollar—and ultimately, the price of copper.
“A weaker U.S. dollar has failed to support base metals; instead rising inventories were weighing on investors’ minds,” ANZ said in a research note.
New Home Sales in the U.S. Dips Again
New U.S. home sales data for March released on Monday showed the third straight month of decline. Not good news for the copper industry as this news suggests a slowdown in the construction sector and in demand for industrial metals. This may play a role in the central bank’s upcoming rate hike decisions.
We will keep an eye on the Fed as well as demand in China and report it to you here.
Further Reading: In-Depth Market Analysis
Frequent contributor Andrew Hecht takes a deeper look at the Fed in his Seeking Alpha article, The Dollar Holds the Key for Commodities.
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