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Copper Report: An Unusual Suspect

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Copper Report: An Unusual Suspect

Copper fell for the third straight session in early morning trading, pushing the red metal toward the one-year lows seen last month. The main culprit for this latest dip is Turkey. More specifically, Turkey’s currency. The lira plunged to its lowest level in a year against the dollar after President Donald Trump escalated a feud with Turkey by doubling tariffs on metal imports.

According to Reuters, the lira has lost more than 40 percent this month on concerns about Turkey’s President Tayyip Erdogan’s reluctance to raise interest rates despite rising inflation and the tariff situation with the U.S.

The collapse of the Turkish lira boosted the U.S. dollar. A stronger U.S. currency typically makes copper and other dollar-denominated commodities more expensive for foreign investors. We will see what impact Turkey has on copper in the near future.

If all of that wasn’t enough, the lira took another hit this morning from data suggesting weaker demand in top consumer China.

Fixed-asset investment growth in China slowed more than expected to 5.5 percent in the first seven months of the year, highlighting weakening domestic demand and faltering business confidence as the U.S. trade war adds to domestic pressures from Beijing’s crackdown on debt and pollution.

“Trade issues have weighed on the price of copper,” states Andrew Hecht of Seeking Alpha. “China has the world’s largest population. While economic growth has dropped from double-digit territory to around the 6-7% level, the nation still requires massive amounts of industrial commodities to build infrastructure. China is the demand side of the equation for raw material demand, and a slowdown in their economy because of the current trade dispute with the U.S. is weighing on the prospects for economic growth.”

“Copper was already on a downtrend on expectations of a slowdown in China and that has been confirmed by the data today,” Carsten Menke analyst Julius Baer told Reuters. “But dig into the fixed-asset investment data on the property side and you will find reasons for optimism. Property market data is also solid and this part of the Chinese economy consumes a lot of metal.”

The property side Baer is talking about comes from another report out of China showing real estate investment there rose 13.2 percent year on year in July, the fastest pace since October 2016 and higher than June’s 8.4 percent rise. It grew 10.2 percent in the first seven months of the year.

Strike Averted – For Now

Reports out early this morning say the union at the world’s largest copper mine, Escondida in Chile, has called off a strike that was scheduled to start today. The union has agreed to extend talks with mine operator BHP for another day.

This, while the main union at another copper mine in Chile, Caserones, said both sides have agreed to extend government mediation of labor talks until Thursday.

High Hopes for the Rest of 2018?

China has reportedly approved $11.45 billion for new urban railway projects in a northern city. In a note, JPMorgan analyst say more infrastructure spending could see China consume 1.3 million tons more copper in the second half of 2018 than in the first. We will see if this becomes a reality.

Currently, copper opened this morning near $2.71 a pound. This after losing 0.76% last week.

 

The Week Ahead

With another fairly light week ahead on the economic calendar, investors will continue to monitor developments on trade and Turkey. Wednesday’s U.S retail sales report will be a highlight for the week, amid expectations for an increase in July from the previous month.

Here is a list of significant events likely to affect the markets as compiled by Investing.com.

Monday, August 13

The U.S released data on mortgage delinquencies.

Tuesday, August 14

Australia is to release data on business confidence.

China published a report on fixed asset investment and industrial production.

The UK is to publish its latest employment report.

The euro zone is to release a preliminary estimate of second-quarter economic growth.

The ZEW Institute is to report on German economic sentiment.

Wednesday, August 15

Australia is to publish figures on the wage price index.

The UK is to release inflation data.

The U.S. is to produce data on retail sales, along with reports on industrial production, labor costs and manufacturing activity in the New York region.

Thursday, August 16

Australia is to publish its latest employment report.

The UK is to report on retail sales.

Canada is to publish figures on manufacturing sales.

The U.S. is to release reports on building permits, housing starts, jobless claims and manufacturing activity in the Philadelphia region.

Friday, August 17

The euro area is to release revised inflation data.

Canada is to produce its latest report on consumer price inflation.

The U.S. is to round up the week with preliminary data on consumer sentiment.

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Jim Williams

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