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Copper – Reflecting on Q1, Looking Ahead to Q2

By Jim Williams

With the first quarter of 2017 in the rearview mirror, now is a great time to reflect on where copper has been the last three-plus months…and look into the crystal ball to see if we can predict where the red metal will go in the near future.

Copper saw nearly a 6 percent increase in Q1. That in itself is a nice bump, but when you take into account that the increase followed a miraculous jump of 14 percent in the last quarter of 2016, that number is staggering. Experts credit the steady climb to strong growth in demand from emerging markets, including China, India and Southeast Asian countries. Others point to the contentious Presidential election here in the U.S.

The price of copper was expected to show positive growth regardless of who won the election – as both Donald Trump and Hillary Clinton made major infrastructure campaign promises. Copper took off when Trump won, and the prices have maintained momentum after the inauguration and through Q1 even with the bumps in the road from the usual suspects – the U.S. dollar, the Fed and interest rates, China’s economy (although, China’s latest official PMI data show the economy running at its strongest pace since 2012), fluctuating stock levels and mine strikes around the globe to name a few.

Despite the usual roller coaster ride you read about here most weeks, the COMEX copper closed Q1 at $2.6550 per pound, and was up 5.84% for the first three months of 2017. LME copper closed the first quarter at $5,865 per ton, which translates to a 6.25 percent increase in Q1.

Copper rose to the highest level since May 2015 when May COMEX futures traded $2.8360 per pound in mid-February. The lows of 2017 came in early January when copper traded to $2.48.

Alexander Gorodezky, of Economic Calendar, writes that he expects the price of copper to continue to soar in the coming months. “Following several years of low prices, producers are hesitant to invest in new growth opportunities, lowering prospects for instant growth in output. However, analysts expect copper supply to start rising in 2018, supported by an expected expansion in key projects, including Glencore’s African operations, Escondida in Chile, and First Quantum Minerals’ new Cobre Panama mine. Therefore, copper prices are likely to increase steadily in the coming months.”

Frequent tED contributor Andrew Hecht takes that sentiment a little further. “One thing to consider when forecasting the path of least resistance for the price of copper is that in 2004/2005 when the price of copper took off to the upside on Chinese demand is that stocks in Shanghai rose above LME stocks,” states Hecht. “Lately, official stocks on the Shanghai exchange are moving higher than the total number of tons of LME copper in warehouses. One of the reasons for the union problems in Chile is that the nation is the 800-pound gorilla in copper production and workers want a bigger slice of the mining profits. Copper could turn out to be a fascinating market in the months ahead if the stars line up. An infrastructure building project in the U.S. and the return of Chinese demand could quickly put the price well over the $3 per pound level once again.”

What to watch this week…
The annual CESCO Week gathering for the global copper industry started Monday in Santiago, Chile. For the first time in five years, attendees can reflect on a copper price that is higher than at the previous year’s event. We will keep an eye on reports out of the Chilean capital for any news/highlights that could impact the price of copper.

Please check back to this space next Tuesday for details.

 

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