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Copper Price Update: Is More Pain Ahead?

Copper Price Update: Is More Pain Ahead?

By Jim Williams

Copper prices declined on Monday, tracking steep losses across the metals complex, thanks to a stronger U.S. dollar and expectations of higher interest rates in the U.S. The strong currency makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities.

Copper prices dropped 3.4 cents, or 1.65 percent, last week, among concerns over the health of China’s economy. The Asian nation is the world’s largest copper consumer, accounting for almost 40 percent of world consumption last year.

Salman Partners VP of Commodity Economics Raymond Goldie says there is a silver lining to the price of copper. In an interview with ETF Daily News Goldie stated “copper prices are, even at their relatively depressed levels today, higher than any price that they’d ever seen before 2006.”

Other Economic Impacts on the Red Metal
U.S. oil prices dropped below $50/bbl
 on Monday for the first time since April, as data showed Saudi Arabian exports falling to their lowest in five months despite record output, while a resurgence in U.S. drilling activity seen earlier this month seemed to fade. Although oil consumption has risen this year, many analysts say demand is insufficient to eat away at the commodity’s global glut.

The Greek government handed in legislation to parliament this week required by lenders to restart talks on a multi-billion euro rescue package. The bailout bill puts into law new EU rules on propping up failed banks and includes the adoption of new regulations for the country’s civil justice system. Prime Minister Alexis Tsipras, who will likely again need opposition votes for the proposal, has until Wednesday night to get the measures adopted in the assembly.

Stocks
In one of Japan’s largest ever accounting scandals, investigators found that top executives at Toshiba finagled the firm’s accounting for more than seven years, embellishing earnings by $1.2B. President Hisao Tanaka and his predecessor Norio Sasaki sought to delay booking losses and employees were unable to go against management orders. Tanaka and Sasaki handed in their resignations following the news; Chairman Masashi Muromachi has been named Chief Executive.

Is More Pain Ahead for Copper?
Forbes.com article from contributor Jesse Colombo

In my late May copper market analysis, I showed that the “smart money” was betting against the copper rebound that started in January. It turns out, they were right: copper fell from $2.95 per pound to $2.50 per pound thanks to the stronger U.S. dollar, lower oil prices, the latest Greek debt crisis, and China’s stock market panic. In this piece, I will analyze whether darker days are ahead for copper or if another rebound is about to happen.

Copper fell hard from July 2014 until January 2015 due to the powerful bull market in the U.S. dollar, the crude oil bust, and China’s economic slowdown. In late-November 2014, copper sliced below its key $3/lb. support level that I pointed a year earlier, saying that this level was an important “line in the sand” that would signal an impending copper bust if the metal broke under it. Copper attempted a re-test of the $3/lb resistance level in May, but was unable to climb above it. Since then, copper has formed a bearish channel as it fell back to its January low of $2.40/lb, which is now the key support level to watch.

Commercial copper futures hedgers (“the smart money”) have been building a modest bullish position in the past month and a half, which may indicate that they expect a short-term bounce. A break above the bearish channel would increase the chances of such a bounce, while a break below the $2.40/lb support level may set the stage for further declines.


Source: Finviz.com

The longer-term copper chart shows how the metal is currently trading in a range between $2.40/lb. and $3.00/lb. A convincing break above or below one of these levels is necessary to signal copper’s next major move.


Source: Finviz.com

Further Reading
Here is an interesting article from Reuters about copper mines to keep digging despite a drop in prices.

 

 

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