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Copper Report: The Red Metal Hovers Just Above $3

Copper Report: The Red Metal Hovers Just Above $3

The price of copper opened this morning slightly above the $3 per pound level. At the closing bell yesterday, three-month delivery of copper (July) fell to $3.088 per pound, or $6,800 a ton, as traders remain cautious regarding rising trade tensions between the U.S. and China.

Both of those numbers are eerily close to the ‘magical’ figures investors watch – $3 a pound and $7,000 per ton. Overall, copper has fallen around 5.6% so far this year after hitting an almost four-year high in late 2017.

Washington and Beijing are still “very far apart” on trade, U.S. Ambassador to China Terry Branstad announced as trade talks kick off today between the world’s two largest economies. The Trump administration wants a timetable on how China will open its markets to U.S. exports, and meet pledges with regards to the insurance and financial services sector, as well as reduce auto tariffs.

Inventory Impact

Experts say copper’s recent price drop is more than trade tensions. Inventory levels at the London Metal Exchange jumped nearly 9,000 tons to 289,975. Inventories had fallen more than 100,000 tons since March to just over 280,000 tons, as copper prices have mostly tread water after reaching that four-year high of $7,312.50 in December.

Copper Scrap: Not as influential as expected?

The industry is gathering in Hong Kong for LME Asia Week, but any hopes of a copper scrap ban boosting prices may have already had a wet blanket thrown over them. A new report out of China shows a muted assessment of the effects of Beijing’s ban on certain types of copper scrap imports.

According to Mining.com, China’s so-called category 7 scrap which includes electrical cables and motors with as little as 5% copper content need processing before it can be used in smelters and refineries and imports have already plummeted this year.

Category 6 imports (average 95% copper content) can be fed directly to refineries and are not banned. Processors outside China have sprung up in anticipation of the ban, and together with rising Chinese domestic scrap supply, would fill most of the shortfall.

Consultants at Wood Mackenzie said in a note, “Total scrap supply in China will drop by around 100,000 tons in 2018, but will return to positive growth in 2019, to rise by approximately 70,000 tons.” Copper prices rose sharply last year when the restrictions were announced.

The Dollar Weighs In

The dollar hit its highest levels of the year early last week, but ran out of gas after tame U.S. inflation data on Thursday tempered expectations for a more aggressive pace of monetary tightening by the Fed.

The Fed raised rates in March and projected two more rate hikes this year, although many investors see three hikes as possible.

“I believe that the Fed showed its dovish orientation at the May meeting,” states Andrew Hecht of Seeking Alpha. “That means that we should see commodities price continue to move to the upside. To me, the new question these days is not if the Fed will hike rates by three or four times in 2018, but how far the ‘symmetric’ target rate for inflation will make the central bank fall behind the inflationary curve.”

Looking ahead at the rest of the week, Investing.com has compiled a list of significant events likely to affect the markets.

Tuesday, May 15

The Reserve Bank of Australia is to publish the minutes of its latest policy setting meeting.

China is to release data on fixed asset investment and industrial production.

The UK is to publish its latest employment report.

The euro zone is to release preliminary data on first quarter economic growth.

The ZEW Institute is to report on German economic sentiment.

The U.S. is to produce data on retail sales and manufacturing activity in the New York region.

Wednesday, May 16

Japan is to release preliminary data on first quarter economic growth.

Australia is to report on wage price inflation.

The euro zone is to publish revised inflation figures.

ECB President Mario Draghi is to speak at an event in Frankfurt.

Canada is to report on manufacturing sales.

The U.S. is to release data on building permits, housing starts and industrial production.

Thursday, May 17

Australia is to publish its latest employment report.

The U.S. is to release the weekly jobless claims report along with data on manufacturing activity in the Philadelphia region.

Friday, May 18

Canada is to round out the week with data on inflation and retail sales.

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Jim Williams

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