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Copper Outlook Looks Bright – Maybe 2007 Bright?

Copper Outlook Looks Bright – Maybe 2007 Bright?

By Jim Williams

Copper prices took a hit in trading Tuesday thanks to a holiday shortened week here in the U.S. and a stronger dollar, but the future looks so bright you may want to grab a pair of shades.

President’s Day here in the states hasn’t put a damper on the prospects of President Donald Trump potentially pushing through legislation to fulfill his campaign promise to rebuild infrastructure. Plus, he has enough votes in Congress to pass the spending bills. This topic alone has sent copper prices skyrocketing since the November election. One can only speculate where the price will go if/when the legislation is passed.

Seeking Alpha, the stock market insights website, posted this morning that they see a target price of $3.125 on copper prices (as shown on the chart below), roughly 15.5 percent higher than the current spot price…”this might seem like an overly ambitious forecast considering its previous gains, we think it would be unwise to underestimate President Trump’s policies and China’s return to growth.”

IG’s Market’s analyst Gary Burton predicts, “The potential is that copper may find a bid up to $3/lb, or around $8,000/ton, on the LME close, taking after the heady days of the 2007 highs.”

Contributing Factors
Other key factors pushing prices higher are the question of global supply as the strike at Chile’s Escondida mine, the world’s largest copper mine, enters its 15th day and a battle between mining giant Freeport-McMoRan and Indonesia over a government decision to forbid copper concentrate exports from the country.

In Chile, Escondida’s owner BHP Billiton and the striking workers met for government-mediated talks yesterday, but the two parties did not commit further wage discussions. However, BHP did say it would not start replacing the striking workers for at least 30 days as a sign of its commitment to dialogue.

Meanwhile, Freeport-McMoRan has warned it could take the Indonesian government to arbitration and seek damages over a contractual dispute regarding the export decision that has halted operations at the world’s second-biggest copper mine.

“These concerns are well known, so the upside for now is probably limited,” a trader in Perth told Reuters, speaking under condition of anonymity. “But it’s still keeping a floor under the price too.”

It’s Not All Good News for the Red Metal
The only things putting dents in the price of copper this week appears to be the dollar and the threat of interest rate hikes in 2017 – to the tune of possibly three increases this year. The Fed has been telling us that inflation “will” hit their 2% target rate but it is not likely to stop there. Last week, Chairperson Janet Yellen told Congress it would be a mistake for the central bank to fall behind rising inflation. The next day, Eric Rosengren, the president and chief executive officer of the Federal Reserve Bank of Boston, told markets to expect three interest rate hikes in 2017.

“I hope the Fed is watching the prices of industrial commodities,” states tED contributor Andrew Hecht. “We are in the midst of an industrial boom and if inflation is not addressed by the central bank before the building starts they will be playing with fire.

“I continue to be bullish on industrial commodity prices,” continues Hecht. “These volatile raw materials should continue to make higher lows and higher highs throughout 2017 and perhaps beyond.”



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