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Copper Hovers Near 6-Year Low; Is $2 In the Future?

By Jim Williams

The price of copper rebounded slightly after the red metal tumbled to a six-year low on Monday. The anxiety surrounding the cost of copper falls squarely—as expected—on China. A slide in China’s stock markets reinforces dim prospects for demand in the world’s top consumer of the metal.

Chinese shares fell more than 8 percent on Monday as Beijing scrambled once again to prop up a market whose wild fluctuations have heightened fears about the financial stability of the world’s second-biggest economy.

“The drop in Chinese equities and the negative growth backdrop in China are clearly going to leave you very concerned about Chinese demand in the months ahead,” Nic Brown, head of commodities research at Natixis, told Reuters. “People are expecting China to do something to stimulate growth, but there is a structural change taking place in China,” adds Brown.

Industry experts suggest the emphasis is moving away from heavy industry towards a consumer-oriented economy, geared towards innovation and technology.

“There is tremendous downside pressure coming from the Chinese stock market. Fear is the ascendant emotion at the moment,” Macquarie analyst Vivienne Lloyd was quoted in The Globe and Mail. “The weak (manufacturing survey) last week reinforced the unease.”

One trader even goes so far to say, “There is no reason to buy copper, not yet, not until we see some improvement in China.”

Traders forecast weaker prices for base metals but also expect some support from a lower dollar, which makes dollar-denominated commodities cheaper for holders of other currencies. A major focus this week will be a monetary policy meeting of US Federal Reserve officials. We will keep an eye on those meetings and report any implications – positive or negative – they may have on the price of copper.

Copper Is On Its Way to $2

Andrew Hecht, commodities writer for Seeking Alpha, posted an interesting article on the price of copper. He states what most people following copper already assume – the red metal is weak. But he goes into depth about why, and how weak copper is on the market right now. Below are his main points:

  • The red metal is weak.
  • China is the reason.
  • Financing deals – selling begets more selling.
  • An ominous sign.
  • Sell any rally.

You can read this article on Seeking Alpha, and follow Andrew on Twitter @technomentals.

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