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Copper Continues to Surge

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Copper Continues to Surge

Despite a slight dip in trading overnight in London, copper is on a roll. The red metal topped out at $2.95 in trading Monday, numbers not seen in about eight months. There are two big contributors to the red metal’s recent surge. First, the ongoing – and apparently positive – trade talks between the U.S. and China. And, secondly, inventory levels for copper are extremely low.

Copper rose last week 5.43%. That is its strongest weekly increase since September 2018. The magical numbers for copper are $3.00 a pound, or $7,000 a ton. Investors typically use those plateaus to determine if copper is ‘healthy’ or not.  Well, don’t look now, but copper is alive and kicking, as trading has been positive eight out of the past nine sessions and the price rose above $6,500 in trading yesterday. That is a first for 2019.

“I think maybe there’s some profit-taking. Investors wanted to wait for some news flow going forward,” Helen Lau, an analyst at Argonaut Securities, told Reuters.

Reports out of Washington are positive regarding the ongoing trade talks between the U.S. and China. At the end of last week, both sides sounded optimistic about the potential for a lasting agreement by the end of March. So much so, President Donald Trump announced over the weekend he has delayed the increase in tariffs scheduled for March 1.

“Commodities have been on the front lines in the trade dispute…especially copper,” points out Andrew Hecht of Seeking Alpha. “The rise over 40 cents per pound to the $2.95 level reflects optimism over a deal between the U.S. and China that would allow economic growth to increase in the Asian nation. More positive news on the trade front is likely to keep the bullish party going in the nonferrous metals sector of the commodities market.”

While the trade talks continue, President Trump is in Vietnam for a second summit meeting with North Korean leader Kim Jong Un on Wednesday and Thursday.

Taking Inventory of Copper

The other key facture to copper’s recent rally is the low inventory levels. The two leading copper exchanges are seeing levels lower than we’ve seen in a long time.

The leading exchange for base metals is the London Metal Exchange. LME stocks were at 133,825 metric tons at the close of last week. In retrospect, a year ago, inventory on the LME was over 380,000 tons.

COMEX warehouses are showing the same trend. Over the past sixty days, copper inventories in COMEX warehouses have moved from over 110,000 to 65,119 metric tons.

Keep Mining in Mind

Another contributing factor to the recent rise in copper prices is the ongoing mining issues in Peru and Indonesia. The latest news impacting the red metal is that Chinese miner MMG Ltd reported Monday it will have to delay some shipments of copper concentrate from Matarani Port in Peru due to a blockade by an indigenous community of a road used to transport copper from the company’s Las Bambas mine.

Looking Ahead

This week copper prices are likely to remain sensitive due to the ongoing trade talks, while U.S. economic data will also be closely watched for its impact on the dollar, another key factor when it comes to the price of copper.

The U.S. dollar index ticked down to 96.405 late Friday. The index ended the week down 0.4% after gaining more than 1% the previous week, in an uneven performance following mixed U.S. economic data.

Here is a look at some of the significant events likely to affect the markets as compiled by www.investing.com.

Monday, February 25

Bank of England Governor Mark Carney spoke at an event in London.

Fed Governor Richard Clarinda presented in Texas.

Tuesday, February 26

BoE Governor Mark Carney and several other policymakers are to testify on inflation and the economic outlook before Parliament’s Treasury Committee.

The U.S. is to release data on building permits and housing starts as well as a report on consumer confidence.

Fed Chair Jerome Powell is to testify on the semiannual monetary policy report before the Senate Banking Committee, in Washington.

Wednesday, February 27

New Zealand is to publish trade figures.

Canada is to release data on consumer price inflation.

Fed Chair Jerome Powell is to testify on the central bank’s monetary policy report for a second day Washington.

The U.S. is also to produce data on pending home sales and factory orders.

Thursday, February 28

New Zealand is to publish data on business confidence.

Australia is to release figures on private capital expenditure.

China is to produce figures on manufacturing and non-manufacturing data.

Germany is to publish preliminary data on consumer price inflation.

Canada is to report on raw material price inflation.

The U.S. is to release an advance estimate of fourth-quarter growth, along with the weekly report on jobless claims and data on business activity in the Chicago area.

Fed Chair Jerome Powell is to speak at an event in New York.

Friday, March 1

China is to publish its Caixin PMI.

The euro area is to publish revised figures on manufacturing activity as well as preliminary data on consumer inflation and unemployment figures.

The U.K. is to publish its manufacturing PMI.

Canada is to report figures on GDP growth.

The U.S. is to release data on personal income and spending along with the core PCE price index. The Institute of Supply Management is to round up the week with its manufacturing index.

Further Reading

Watch the copper price – if it keeps rising, this bull market could have legs

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Jim Williams

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