Exclusive Features

Copper Prices – All Eyes Remain on China

Copper Prices – All Eyes Remain on China

By Jim Williams

A pair of reports on China’s manufacturing sector released Monday failed to ease concerns about a slowdown in the world’s second-largest economy.

In early morning trading Tuesday copper prices bounced off a five-week low from the day before. This despite speculation policymakers in China will have to introduce further stimulus measures to jumpstart the economy amid lackluster growth.

Several analysts say demand from China is showing signs of improvement, despite the official Chinese manufacturing PMI survey, one of Monday’s reports, which showed only a slight increase in manufacturing activity last month and a drop in exports.

“We think there’s more upside than downside for copper,” said Vivienne Lloyd, metals analyst at Macquarie.

“Copper demand is picking up in China and the mining side of things has not performed so well this year. We’re getting some really strong signals from fabricators about demand from the power sector,” she said.

On the flip side, an article on Seeking Alpha reports recent economic data estimates which predict China’s slowdown will continue and that China’s growth in 2015 is likely to be lower than 2014.

Since November, the People’s Bank of China has introduced a series of stimulus measures, including lowering interest rates three times and cutting the reserve requirement ratios of major banks twice, in order to spur economic activity and boost growth.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.

On the Comex division of the New York Mercantile Exchange, copper for July delivery tacked on 1.1 cents, or 0.4%, to trade at $2.731 a pound during European morning hours. Prices held in a range between $2.713 and $2.738.

A day earlier, copper prices slumped to $2.710, a level not seen since April 24, before settling at $2.720.

What Does The ‘Smart Money’ Think About Copper Right Now?

by contributor Jesse Colombo

After plunging in the fall, copper has slowly recouped some of its losses this year due to speculation about an upcoming Chinese stimulus program, U.S. dollar weakness, and rebounding oil prices. Is copper’s recent strength sustainable or is it just a pause before another leg down? To answer that question, let’s take a look at the technical and fundamental picture.
After approaching and being unable to break its long-time $3/lb. resistance level in early May, copper has sold off in recent weeks. The $3 resistance level is an important psychological “line in the sand” that must be surpassed in order for the technical situation to improve. In addition, the “smart money” (commercial futures hedgers) have used copper’s rally to cut their long position to virtually zero, which may be a harbinger of future weakness. Furthermore, the “dumb money” (large traders) have been the primary driving force behind copper’s rebound this year.

Source: Finviz.com

The longer-term chart of copper shows how critical the $3/lb. resistance level is and how aggressively the “smart money” has pared its long position. In the past, copper has experienced notable bearish moves after the commercial hedgers cut their bullish bets like they have in the past several months.

Source: Finviz.com

The U.S. dollar has a strong influence on commodities such as copper, so traders should watch it closely. The dollar trades inversely with commodities, so dollar strength is typically bearish for copper, and vice versa. The U.S. Dollar Index broke its long-term uptrend line in late April, but is now re-testing this key technical level. If the Dollar Index drops after touching this level, it may help to support copper prices. If the Dollar Index can break above this level, on the other hand, copper’s 2015 relief rally may encounter headwinds.

Source: Barchart.com

China’s ongoing economic slowdown and ample inventories continue to weigh on copper, but the dollar’s next major move is likely one of the most important catalysts that will help determine if copper can break above its $3 resistance level, or prove the “smart money” right by re-testing its early-2015 lows.

You can read Colombo’s article on Forbes’ website here.

Follow or add Colombo on Twitter, Facebook, and LinkedIn to stay informed about the most important trading and bubble news as well as his related commentary.

(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)

Tagged with

Comment on the story

Your email address will not be published. Required fields are marked *