By Jim Williams
Copper prices spiked to a four-week high in early trading Tuesday before tumbling along with a global stock selloff and oil prices continuing their free fall.
Copper futures for March ended down 0.6 percent at $2.055 a pound on the New York Mercantile Exchange.
The early gains in the market were credited to a stimulus announcement out of China regarding the nation’s housing market. The Chinese government says it will reduce the minimum down payment required for home purchases. They hope the break in down payment will resuscitate a Chinese economy that has been on life support for quite some time.
Tuesday’s early gains quickly headed the other direction when trading started in the US. A selloff in stocks, along with sinking oil prices, took the air out of any upswing copper investors had hoped for. The up-and-down trend of copper seems par for the course, but some experts—with an eye on the calendar—say, not so fast…
“The overall picture for copper is bearish,” Barclays’ commodities analyst Dane Davis told Australian media outlet SkyNews. “The Chinese holiday means the entire country shuts down. I would caution against interpreting price swings in February as we really don’t know what’s going on with the fundamentals.”
The Chinese New Year falls on February 8 this year. Most businesses—including the banks—shut down for a week (including weekends). Looking ahead, investors expect copper prices to edge slightly higher as demand for the red metal remains steady while major mining players like Poland’s KGHM and mining giants Glencore and Freeport plan to suspend some copper production in 2016.
“Despite weaker economic data recently, we still believe that the demand for commodities in general and metals in particular will stay robust,” Commerzbank AG said in a note. “Alongside announcements of extensive production cuts, there should be supply deficits on many metal markets this year, which we believe will lend impetus to prices.”
The Australia and New Zealand Banking Group Limited (ANZ), predicts copper prices will increase 27 per cent by the end of the year. ANZ’s commodities analyst Daniel Hynes says, “I think the picture’s going to remain somewhat cloudy, but it does feel like we’re finding a bottom here. If we do see volatility in other global asset classes ease a little bit then we could see copper prices start to inch up a little bit.”
If ANZ’s prediction for copper holds true, that would put the price around $5,500 per ton. That is where copper was trading in July last year.
We won’t get too excited until we get through the Chinese New Year. After that, we will see if the price undergoes a steady climb toward that 27 per cent, or if the roller coaster ride we’ve become accustomed to will continue.
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