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Copper Is Red Hot – For Now

By Jim Williams

The red metal has been red-hot lately, the price of copper rose for an eighth straight session Monday, its longest run of gains since 2005. The jump has put the metal less than 1 percent from entering a bull market. This after copper touched a five-year low in January. In New York, July futures climbed 0.5 percent to $2.936 a pound. Copper for delivery in three months climbed as well, to $6,440.50 a metric ton.

Investors seem to be a little less concerned about China, the world’s largest consumer of copper. On Friday, China’s official purchasing managers’ index (PMI) showed mild growth in April, beating expectations. On the other hand, HSBC’s April PMI came in at 48.9, indicating manufacturing contraction in China.

A Drop In Mining Means A Rise in Copper

Monday’s positive gain is being attributed to a drop in production at Glencore Plc, the world’s third-biggest copper miner. Glencore recorded a 9 percent decline after ore grades fell and a Chilean mine shut for maintenance. Output from mines in Africa, Australia and South America are down almost 35 thousand metric tons in the first quarter compared to a year earlier.

“Glencore’s output data today reinforces our view that mined copper output will disappoint in 2015 relative to the market’s expectations,” says Nic Brown, the head of commodity research at Natixis SA in London. “There may be a little more upside, but if you’ve been long since January, it would be very reasonable to take some profits here.”

A Weaker Dollar Behind the Push?

The recent retreat in the dollar index may be another driving force behind the spike in copper. Hard assets, like copper, tend to move in the opposite direction of the U.S. dollar. A weaker greenback means that it takes more of them to buy the same amount of copper.

There are other factors at work as well. U.S. manufacturing data continued to signal expansion, although at lower-than-expected levels, and the number of disruptions to copper mining activity – noted above – has been on the uptick this year, interfering with supplies.

The near-bull market rally has its skeptics, too. Some analysts note that Chinese demand for physical copper has remained weak, with imports down 21% in the first quarter from a year earlier, as the country already has large stockpiles.

And others said the market’s weakness over the past year and volatility could bring it under pressure again.

“This is copper,” said Charles Nedoss, senior market strategist at brokerage LaSalle Futures in Chicago. “You’re one report away from it turning right back around.”

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