by Jim Williams
Copper hit a four week low in early morning European trading Tuesday as the dollar continues to climb and investors keep an eye on economic news expected out of China on Wednesday.
That is when China, which consumes more than 40% of the world’s copper, is scheduled to release gross domestic product for the first quarter. Most experts believe there are risks the report may come in weaker than expected after poor trade news this week.
China’s export sales dropped 15% in March, adding to an already deep concern about the Asian country’s growth.
“(China’s) gradual managed slowdown will continue and that’s not good for copper,” said Robin Bhar, an analyst for Societe Generale.
“Second quarter demand is expected to improve, but that will just stop (copper) prices weakening significantly. We still expect a surplus of about 300,000 tons (this year).”
Three-month copper on the London Metal Exchange dropped to $5,905 a ton, its weakest since March 20.
The Fitch Report – U.S Receives AAA Rating
The U.S. ended the month of March with a budget deficit of $53B, up 43% from the same period last year, bringing the current fiscal YTD deficit to $439B at the end of last month. Meanwhile, Fitch has affirmed the U.S.’s long-term default ratings at “AAA,” citing the country’s “unparalleled” financing flexibility as the issuer of the world’s pre-eminent reserve currency and benchmark fixed-income asset. Fitch also expects the U.S. to grow 3% in 2015, before decelerating slightly in 2016.
The Dollar Weighs In
The Wall Street Journal reports the dollar rallied Monday on renewed optimism among investors that the Federal Reserve would stay on track to raise interest rates this year.
“We are having a big shift back toward U.S. dollar strengthening,” Camilla Sutton, chief currency strategist at Scotiabank, was quoted in the WSJ article.
Seeking Alpha’s Andrew Hecht writes, “The global pricing mechanism for most commodities is the U.S. dollar by virtue of the dollar’s position as the reserve currency of the world. Therefore, there is a solid inverse relationship between commodity prices and the greenback and copper is no exception.” More from Andrew a little later.
Global Impact
Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April. “We have come to the end of the road…If the Europeans won’t release bailout cash, there is no alternative (to a default),” one government official said. Athens has also decided to withhold more than $2.6B of payments due to the International Monetary Fund (IMF) in May and June if an agreement is not struck.
Further Reading
Is the Elevator Going Up, or Down?
Most everyone following the price of copper knows the price can open up, trend down and then rebound back. A lot of investors want to know when that elevator ride will take a one-way ride to the top – and stay there!
Seeking Alpha’s Andrew Hecht says copper has been making lower highs since 2011. He also points out the red metal peaked in 2011 at $4.6495 per pound, but since then it has been elevator down for copper.
You can read his entire article for Seeking Alpha here.
We will keep an eye on the news out China and keep you up to date on the impact their economic news has on the price of copper.
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