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Copper Labors Through

Copper Labors Through

Copper prices ticked higher in Asian markets this morning as investors predict China will respond to weak factory data with stimulus measures and the U.S. dollar weakened.

The Shanghai Composite closed up 0.5% overnight despite another disappointing read on Chinese manufacturing, with the Caixin/Markit factory PMI for April falling to 50.2, lower than the March figure of 50.8.

This comes a day after a slight setback to open the week due to stocks in London Metal Exchange-approved warehouses jumping, suggesting lackluster demand ahead of holidays in China. The markets are already closed there as the China Labor Day holiday runs from May 1-3.

Here in the States, copper opened this morning at $2.97 per pound. While still hovering around the $3 level, prices for the red metal have fallen 2.4% since hitting a nearly 10-month high about three weeks ago.

Digging into Inventory

Latest data from the LME shows copper climbed 36,325 tons to 232,225 tons yesterday. That puts stocks up more than 46,000 tons, or 25%, since last week.

Traditionally, copper sees a surge in usage in the seasonally strong April to June period, ahead of rising Chinese construction activity in the third quarter. Fiscal and monetary stimulus earlier this year have reinforced the idea.

“The rally earlier this year was driven by the idea of an improving demand in China due to stimulus,” Julius Baer analyst Carsten Menke told Reuters. “Now we’re waiting to see if these measures actually translate into increasing metals demand. The car market is still struggling, despite stimulus measures.”

China’s car sales fell again in March but the pace of decline was the smallest in seven months, industry data showed.

China’s refined copper cathodes imports rose to 279,630 tons in March, up more than 30% from February, according to Reuters calculations based on data released by the General Administration of Customs.

“The net speculative long in copper was completely liquidated over the week and positioning in the metal is now neutral,” Marex Spectron analysts said in a note.

Southern Copper (SCCO) sees a “slight” shortage of copper this year as production trails consumption, but CFO Raul Jacobs told Seeking Alpha the company is “very positive about where the copper market is going over the next few years” and predicts a “structural deficit in coming years.”

Southern Copper Corporation is a company that is one of the purest plays on the price of copper. With mining, exploration, smelting, and refining of the red metal at sites in Peru, Mexico, Argentina, Ecuador, and Chile, SCCO shares move with the price of the red metal and is often looked to as the benchmark of copper trends.

Trade Talk Update

Boosting sentiment appears to be the next round of U.S.-China trade talks in Beijing. Enforcement mechanisms are “close to done,” according to U.S. Treasury Secretary Steven Mnuchin, and the two sides hope to seal a deal by early May. Mnuchin says he hopes to make “substantial progress” with Chinese negotiators in the next two rounds of trade talks.

Further Reading

Copper Trading: Who’s Afraid of the Red Metal?

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Jim Williams

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