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Copper Hits High Point – Will It Last?

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Copper Hits High Point – Will It Last?

Copper prices hit two-week highs overnight as better-than-expected industrial output and investment data from top consumer China boosted sentiment. Analysts suggest further gains are being throttled by the lingering U.S.–China trade dispute.

Reports out Monday show China’s June industrial output rose 6.3 per cent from a year earlier. That beat May’s 5.0 per cent growth and the 5.2 per cent expected by analysts polled by Reuters. Fixed-asset investments for the first half of the year rose 5.8 per cent from a year earlier, ahead of the forecasted 5.5 per cent.

Benchmark copper on the London Metal Exchange (LME) ended up 0.8 per cent up at $5,983 a ton, even touching $6,200 at one point in the latest session – the red metal’s highest since July 1.

The numbers suggest an improving outlook, but some analysts say they may not be sustainable.

“China’s economic data in June was better than expected, but industrial metal markets seemingly were not convinced that this marks a turning point,” Julius Baer analysts said in a note. “Chinese metals demand is sufficiently solid to support prices but not strong enough to push them higher.”

Frequent tED contributor Andrew Hecht of Seeking Alpha chimes in, “The price of copper is focused on the Chinese economy as we move forward in the second half of 2019. While the Chinese economy continues to grow at over 6%, the red metal will need to see optimism over trade return to the market and positive signs from Chinese economic data to spark a price recovery.”

Hecht continues, “The price action in the copper market could be telling us that we are likely to experience disappointment over trade sooner, rather than later after the most recent threat to probe below the $2.60 level again and fall to a new low for 2019.”

“Copper’s fortunes are very much tied to what is going on with the U.S.–China trade talks and the outlook for Chinese demand and stimulus,” Citi analyst Oliver Nugent told Reuters. “There are some bullish backstories on the micro side, like shortages of concentrate, but on the refined metal side there is nothing substantial enough to displace the macro story.”

Further Reading

Here is a Seeking Alpha story that hits close to home – Copper Users Stepping Up Their Bid. Is there really a buying surge regardless of the price of copper?

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Jim Williams

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