By Jim Williams
The price of copper has rallied for seven straight sessions. Copper has jumped 6.1 percent in this streak, its longest rally in 18 months.
The red metal touched $2.2330, topping the September 30 highs, before settling just over the $2.21 a pound mark.
The latest push for the price of copper is being attributed to improving Chinese manufacturing figures and a decrease in supply.
Reports released Tuesday from China’s National Bureau of Statistics showed the country’s official manufacturing purchasing managers’ index (PMI) for October at 51.2. That is better than the market forecast of 50.4 and September’s reading, also of 50.4.
The Caixin manufacturing PMI for September came in at 51.2 – above expectations of 50.2 and September’s reading of 50.1. This was also the fastest growth in the sector in two years. Additionally, the country’s official non-manufacturing PMI, which represents the services sector, was at 54.0 in October, up from September’s figure of 53.7.
A reading above 50 is associated with expansion. October was the fourth consecutive month manufacturing activity grew, according to Caixin data, which focuses on small- and medium-sized enterprises. It was also the fastest expansion since mid-2014.
“Overnight, Chinese manufacturing PMI and privately reported Caixin equivalent number beat expectations, helping to support economic sentiment as base metals pushed higher,” a trader said.
The latest move in copper has come as stock levels on the London Metals Exchange have been declining.
Inventories of the red metal have fallen from almost 380,000 tons at the start of October to under 321,000 tons as of October 31, 2016.
“Copper is at a critical level once again and given the drop in inventories, action in other base metal markets, and departure from its relationship with the dollar the chances are rising for an upside breakout for the red metal,” says Andrew Hecht of Seeking Alpha and frequent contributor for tED. “Remember to keep your eyes on LME stocks as the price increases. Since 2011, the optimal strategy in copper has been to sell rallies and cover short positions on price dips. However, the recent market action signals this could be changing, and it may now be a time to initiate risk positions from the long side, with profit horizons at higher levels.”
Here in the US, the Federal Open Market Committee (FOMC) wraps up its two-day November meeting today. Most involved assume the Fed will sit tight until next month. We will have to play a wait-and-see game to see what the Fed does after next week’s election and the remainder of 2016.
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