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Copper Is Looking to Buck the Trend

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Copper Is Looking to Buck the Trend

The price of copper has come out of the gate swinging this week. After eight consecutive weeks of posting negative numbers, the red metal gained more than 1% Monday. That momentum continued in overnight trading in Asia.

Some analysts point to the recent trade deal with Mexico helping push the market higher. July copper futures were at $2.6275 per pound last Friday. After the deal with Mexico, some optimism returned to the market boosting the price to over $2.66 per pound Monday. Trading opened this morning at $2.67 a pound.

While Mexico provided a shot in the arm to markets across the globe, the focus in financial markets is still on the festering trade dispute between Washington and Beijing.

President Donald Trump said on Monday he was ready to impose more punitive tariffs on Chinese imports, Beijing said it is open for more trade talks with Washington.

President Trump has said he is getting ready to meet Chinese President Xi Jinping at the Group of 20 Summit in Japan later this month, although China has yet to confirm any such meeting.

“The path of least resistance of copper will likely hang in the balance as the two leaders meet,” states Andrew Hecht of Seeking Alpha. “If they can achieve progress that leads to renewed negotiations and compromise, the price of copper should rebound. If they were to agree, we could see the price explode to the upside. However, if there is no progress or worse, the price of the red metal may continue to make lower lows.

“As an eternal optimist, I believe that both President Trump and President Xi have more to gain from compromises and a deal than from a continuation of the current escalation of the dispute that leads to a trade and currency war between the countries with the leading GDPs of the world.”

We will keep an eye on what happens leading up to and including the Summit scheduled for June 19 – 20 in Osaka, Japan. You can read more on this topic here.

LME Levels

Another factor weighing on copper is the inventory level on the world’s leading nonferrous metals exchange. Copper levels on the London Metal Exchange (LME) increased from 185,000 metric tons at the end of May to the most recent level at 211,575 tons as of June 7, a rise of over 14% in a little over one week.

Chile Cools Its Estimate

Chile’s central bank on Monday trimmed its estimate for the average price of copper for 2019-2021 to $2.80 from $2.90, citing the impacts of the US-China trade war on its top export, the bank said in a report.

This comes after the bank cut its key interest rate by 50 basis points last week, the biggest reduction in a decade, saying the economy could grow faster without fueling inflation. The bank also said in a statement accompanying last week’s decision that the U.S.-China trade conflict has played a role in this as it has “undermined global growth”.

Further Reading

If you are looking to get to the bottom of how copper supply works, this Seeking Alpha article takes a deep dive into the top ten copper mines around the globe.

 

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Jim Williams

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