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Copper Continues to Tumble

By Jim Williams

Less than two weeks into the new year and copper is already down 8 percent.

The red metal closed Tuesday at just over $1.95 a pound, or a tick over $4,300 a ton. Those are numbers we haven’t seen since March 2009.


http://www.nasdaq.com/markets/copper.aspx

The most recent drop comes after additional equity losses in Shanghai created more concerns for the Chinese economy. The losses are highlighted by Monday’s announcement out of China that the 2015 producer-price index for manufactured goods dropped 5.2 percent. The purchasing price index for manufactured goods followed suit, declining by 6.1 percent.

“The psychology is that global GDP is slowing down … and China in particular there’s a great doubt,” said Bill O’Neill, co-founder of commodities investment company Logic Advisors. Investment “funds are treating industrial commodities like a plague,” O’Neill added.

If you have been following along with us for the past year or so, you know that China and the price of copper go together like peanut butter and jelly. As the chart from mining.com below shows, the future may not be all doom and gloom if copper can keep pace.


Source: Capital Economics

Based off an expected annual 8 percent economic growth in China, we could see an additional $800 billion to the GDP, possibly even spiking over $1 trillion by 2020, and if copper holds serve, we should be in better shape by the end of the decade.

That doesn’t solve the problem of today with the continuing fall of the Chinese economy and the bottom line of copper in our industry. For that to get better we can expect more cuts by the Chinese government and maybe even some curtailing of copper mining to try and balance out the supply and demand issue until we can get a firm grasp on China, the U.S. dollar and the economy overall – especially after last night’s State of the Union address by President Obama.

We will keep our thumb on the pulse of the situation and keep you posted.

 

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