By Jim Williams
Copper prices have fallen to their lowest level in 4½ years. One copper expert suggests the price of the red metal could continue to fall to less than $2! More on that in a moment, but first, the latest tumble of copper.
Prices continued to retreat after the long Christmas holiday. So far this session, copper has set a four-and-a-half-year low price of $6,230 per ton.
“It is a pretty ropy start to the week but it has followed on from where we left off last week and there is not that much going on. I think we need to get the year-end out of the way before we see real trade and direction emerging,” one trader said. Another suggested that the final session of 2014 on Wednesday may well throw up some volatility as year-end position-squaring kicks in, although most major investors and funds are expected to stay sidelined.
Several economic releases are due before the calendar turns to 2015. Notable figures include China’s final HSBC flash PMI, with U.S. releases including consumer confidence, weekly jobless claims, the Chicago PMI and pending homes sales, among others being announced either Tuesday or Wednesday.
$2.8355 – The Lowest Close in 4 ½ Years
Copper for December delivery ended Friday at $2.8355 a pound, the lowest closing price since June 8, 2010. The futures contract is down a whopping 18% this year. Experts say the continued downturn is a sign of investors’ skepticism about China’s efforts to kick-start its economy.
Economic growth in China, which consumes more than 40% of the world’s copper, has slowed this year, falling to 7.3% in the third quarter. With copper’s wide use in manufactured goods and construction, investors are concerned that the slowdown will lead to less demand for the metal.
Beijing has taken action to support its economy, including easing credit conditions and changing the way it calculates gross domestic product, but copper investors aren’t impressed. China relaxed a major restraint on lenders’ ability to use deposits to make loans in an effort to inject more money into the economy.
But it may not be enough, says George Gero, a senior vice president at RBC Capital Markets Global Futures. “Investors see that past stimulus hasn’t helped much, and they are a bit skeptical on this one,” Gero said. “In general, the mood in the copper market has been quite negative, and [Friday’s] drop is not a good sign,” Gero added.
A slide in oil prices on Friday also pressured copper, as investors tried to lighten positions in other commodities to cover losses in crude. “Lower prices beget lower prices,” said Ira Epstein, a strategist at the Linn Group. “You would have thought the China news would have been super-friendly for copper, but it wasn’t.”
Is Copper A Leader Or A Follower?
Andy Hecht wrote in Seeking Alpha, “Copper is the next shoe to drop – watch out below. I believe that it is only a matter of time before copper tests and falls through the June 2010 lows at $2.72 per pound. The evidence is compelling. Look at the price of other industrial commodities, particularly crude oil and iron ore. Look at the economies in Europe and China and the strength of the U.S. dollar. Look at how the dominant producers are gearing up to increase production even as prices move lower in order to build market share for the next cyclical bull market. Copper is not the doctor this time, rather, it is the patient and the patient looks sick. The red metal is not a leader but a follower this time. Can copper drop to $1.25 per pound in 2015? You bet it can and it may happen fast once support at $2.72 gives way.”
You can read his entire article here.
Copper Price Forecast 2015
As frequent contributor Michael Turek, Senior Director at Newedge out of New York said many times, “No one has a crystal ball to tell us what the market is going to do.”
Taras Berezowsky, from MetalMiner, writes in Seeking Alpha that copper is the worst performer among the industrial metals in 2014. Since the start of the year, we’ve continued to say that there is no reason to go long on copper unless prices managed to break above $7,500, which they haven’t.
Because copper lacks strong fundamentals, we wouldn’t expect copper to make significant moves upward while commodity prices remain low. Buyers should keep riding the trend down and only hedge if prices move above $7,500.
You can read the rest of her article here.
Thank you for reading our Copper stories throughout 2014. We will continue to cover the market heading into 2015 to keep you up to speed on trends and streaks pertaining to the red metal.
Happy New Year!
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