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Copper – In Wait and See Mode

By Jim Williams

Copper investors—actually, investors across all markets—appear to be trading lightly this week as they wait to hear what Federal Reserve Chair Janet Yellen has to say in her semi-annual monetary policy testimony. The Fed chair is set to testify before Congress tomorrow and Thursday.

Investors will watch her two-day testimony looking for clues on if/when the central bank will tighten U.S. monetary policy. After the Fed minutes released last week, investors expect the U.S. central bank to hike rates at least one more time this year. The question appears to be not if, but when will the rate go up again?

If that happens as expected, copper could come under pressure. Typically, higher rates mean higher borrowing costs, which usually translates into a stronger U.S. dollar which leads to lower metal prices.

Copper opened for trading this morning at $2.64, its lowest price in two weeks. Key factors impacting the red metal are inflation numbers out of China, a job report here in the U.S. and news of yet another mining strike in Chile.

What Happens in China – Impacts Copper Worldwide
The country's producer price inflation (PPI) was unchanged in June as signs of economic weakness weighed on the outlook for prices. Consumer prices in China actually rose 1.5% in June, according to the country's National Bureau of Statistics. That was unchanged from the May report. The bureau also said that producer prices were up 5.5% on year, an unchanged pace and in line with expectations.

That being said, copper actually saw a slight uptick in early morning Asia trading today, thanks in part by stronger steel prices in China pulling copper up with it.

U.S. Jobs Report – Employment Numbers Released
Here in the states, a jobs report released on Friday provided a much-needed shot to the economy. An employment report showed the U.S. added 222,000 jobs last month. That represents the second-largest job increase of the year. Despite the big numbers, the Labor Department said unemployment inched up to 4.4% from 4.3%.

Mine Strike in Chile
Just when it seems like the labor woes are over and news seems to simmer on mining strikes…

The latest situation pushing workers to put down their tools and walk the picket line is in Chile, the world's leading copper producer. Workers at the Zaldivar copper mine voted to approve a strike on Monday after talks with the company failed.

Miners can't walk off the job just yet. They have to wait out a government mediation period that will last at least five days before they are legally allowed to strike. This latest labor strife follows another mine conflict at neighboring Centinela mine, where workers are waiting out their mediation after voting to strike earlier this month.

Together, Centinela and Zaldivar produced 340,000 tons of copper last year.

You may remember earlier this year, a strike at BHP's Escondida copper mine in Chile, the world's largest, sent prices for copper soaring on supply concerns. We will keep an eye on this latest round of negotiations and report their impact on copper.

The Copper Bubble
Frequent tED contributor Jesse Colombo weighed in recently on the red metal's outlook. “Copper…needs to break through the $2.80 per pound resistance level in a convincing manner in order to give another bullish signal,” claims Colombo. “The commercial copper futures hedgers have maintained their relatively bullish position since early May. They built a large short position in November and December that foreshadowed the metal's seven-month stagnation.”

We will keep an eye on all of these contributing factors and report any news that impacts our industry right here every week.

 

 

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