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Copper Falls as Tensions Mount

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Copper Falls as Tensions Mount

Copper prices fell on Monday as investors shrugged off the potential strike at Escondida and focused instead on economic data this week expected to show slowing growth in top metals consumer China. Oh, and don’t forget, there is still that little thing called a trade war between the U.S. and China impacting the market as well.

Copper has dropped from $3.3155 on June 7 to lows of $2.6695 on July 19. That is a deadfall of 19.5% in just six weeks. On Friday, July 27 the price of three-month copper futures on the COMEX was at $2.8020 per pound. The red metal opened this morning at $2.78. Click the image below for up-to-the-minute pricing.

“Copper has been a falling knife, but the trajectory of the decline seems to be running out of steam over recent sessions,” states Andrew Hecht of Seeking Alpha. “The copper market will be highly sensitive to news from Chile and on the trade front volatility is likely to remain the norm rather than the exception when it comes to action in the copper futures and forward markets on the COMEX and LME over coming weeks.”

Escondida Latest

The labor standoff that has the attention of copper investors worldwide made some news overnight. Reports out of Chile say the union at BHP’s Escondida mine, the world’s largest copper mine, is expected to overwhelmingly reject the final contract offer, increasing the likelihood of a strike, a union leader told Reuters.

“Half our members have voted,” said union spokesman Carlos Allendes. “We hope for positive and overwhelming results, with around 80 percent rejecting the offer from Escondida.”

Union members have until Wednesday to finish voting on the company’s proposal, when the union will conduct an official count. After that, either party can call for a period of government-mediated arbitration that could last as many as 10 days.

You may remember, a 44-day strike at the mine last year nearly crippled global copper markets and slowed economic growth in Chile, the world’s top copper producer.

Also on Monday, workers at Codelco’s Chuquicamata copper mine in Chile, the state miner’s second largest by output, walked off the job in protest at the “unjustified layoff” of two workers.

Other Factors Impacting Copper

There seems to be a lot of talk about the relationship status between the United States and China, but not a lot has changed the last few days on either side. That doesn’t mean the tariffs in place are not having an impact.

Coca-Cola announced it is raising its prices as a result of the initial tariffs in June. Even toy giant Hasbro is moving production out of China. The pinch is being felt across all industries, but especially copper, as the red metal is the bellwether commodity in the markets. It tends to reflect the health of the global economy and issues that impact economic growth.

The strengthening dollar looks like it could provide some support to copper this week, ahead of the Federal Reserve’s latest rate-setting meeting, where it is expected to lay the groundwork for its third rate hike this year in September.

The greenback dipped but held near one-week highs after data showing that the U.S. economy grew at the fastest rate in four years in the second quarter was offset by concerns that trade tensions would act as a drag on growth in the second half of the year.

Investing.com has compiled a list of significant events likely to affect the markets, including China’s manufacturing report due out today. It looks like it is going to be a busy week as we welcome in a new month.

Monday, July 30

Germany released preliminary data on inflation.

The produced data on net lending.

Tuesday, July 31

China is to release data on manufacturing and service sector data.

New Zealand is to release data on business confidence, while Australia is to report on building approvals.

The BoJ is to announce its benchmark interest rate and publish what will be a closely watched rate statement. The announcement is to be followed by a press conference.

The euro zone is to release preliminary data on consumer price inflation.

Canada is to publish data on GDP and inflation.

The U.S. is to release data on personal spending and the Fed’s preferred inflation measure, the core PCE price index, along with data on business activity in the Chicago region and a report on consumer sentiment.

Wednesday, August 1

New Zealand is to publish its latest employment report.

The UK is to release data on manufacturing sector activity.

In the U.S., the ADP nonfarm payrolls report and the Institute for Supply Management’s manufacturing index will be released.

Later in the day, the Fed is to announce its latest monetary policy decision and publish its rate statement.

Thursday, August 2

Australia is to produce trade data.

The UK is to release data on construction sector activity.

The BoE is to announce its latest monetary policy decision and publish its latest inflation report. BoE Governor Mark Carney is to hold a press conference to discuss the report.

The U.S. is to release data on initial jobless claims.

Friday, August 3

Australia is to publish data on retail sales.

The UK is to release data on service sector activity.

Canada is to publish trade figures.

The U.S. is to round up the week with the nonfarm payrolls report for July and the ISM report on non-manufacturing activity.

Further Reading

There are plenty of new articles this week surrounding copper. One that particularly caught our eye was the Financial Times article, Checking up on Dr. Copper. The article points out Citigroup’s expectations that tariff tensions may ease, considering President Trump’s recent about-face with European Commission President Jean-Claude Juncker.

“Prepare for a decade of Dr. Copper on steroids,” write Citigroup analysts in a recent note. “The metal is getting much more difficult and expensive to mine, and given the increased pace of urbanization and growing demand for electric vehicles (for which copper is a key input), they predict prices will top $8000 per metric ton by 2022.”

You can read the entire article here.

Additional articles

First Quantum extends copper hedging, even as trade war clips prices

Where is the copper bottom?

Chile is canary in copper mine as price of metal falls

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Jim Williams

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