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Copper Hits Three-Month Low

By Jim Williams

That screeching noise you hear could just be the price of copper as the red metal skidded to a three-month low on Monday, mainly based on concerns ahead of manufacturing data from China that is likely to show stalling factory growth from the mainland.

A day earlier, China’s finance minister, Lou Jiwei, said that weakness in a single economic indicator wouldn’t be reason enough for a drastic change in the country’s fiscal direction. The remarks came days after many economists lowered growth forecasts having seen the latest set of weak data. Although Mr. Jiwei didn’t name any indicators, investors believed he was referring to last month’s industrial output numbers, which fell to their lowest level since the 2008 global financial crisis.

“The comment sent shock waves through the markets, and understandably so,” said Michael Turek, head of metals at Newedge. “All eyes are turned to China at the moment.”

“The big concern out there seems to be about China,” Nic Brown, head of commodity research at Natixis, confirmed to Reuters. “Everybody is getting increasingly worried about the economy and the real estate sector and there are question marks about when we might get additional policy stimulus (from China).”

Turek adds, “The metals complex is again on the retreat as the Chinese authorities themselves express doubt about maintaining growth objectives and the amount of QE available to propel ongoing economic progress. That can often be a prelude to more constructive statements and actions from the mainland, but in the meantime rallies in metals remain vulnerable. The ongoing strength in the dollar also serves as a depressant. All in all, metals just don’t seem to be the flavor of the month!”

Probably the best quote of the week regarding copper came from an article on www.fastmarkets.com, “The cool wind blowing from China has dampened sentiment for the base metals and that prompted further price weakness overnight, no doubt as more fund liquidation takes place. It now looks as though the uptrends seen over the summer are now being corrected.”

In other copper news, U.S.-based Newmont Mining Corporation announced it will end a nine-month delay and resume copper exports from Indonesia. The influx of copper adds more supply to a market that is expecting its first surplus in four years. Newmont hasn’t shipped copper ore from Indonesia since January, after haggling with Indonesian authorities over export rules and a disagreement over new export taxes.

As we reported back in August, another U.S. mining company, Freeport McMoRan Inc., resumed copper exports from Indonesia after a long delay.

One more factor affecting prices for base metals is the recent rise in the value of the U.S. dollar. As of Friday, the dollar has logged its longest winning streak in at least 28 years. Strength in the greenback is bad news for base metals, which are priced in dollars and tend to be more expensive for investors who use other currencies to buy the metal.

Copper is trading more than 8 percent lower so far this year, pressured by uncertainty about demand and a looming surplus.

Three-month copper on the London Metal Exchange (LME) closed 1.7 percent weaker at $6,720.50 a ton after dipping to $6,707.25, its lowest level since June 19.

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