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Copper Roundup: Banks, Trade War, Iran and Mines

Copper Roundup: Banks, Trade War, Iran and Mines

Copper traded sideways in overnight trading as investors continue to exercise caution ahead of monetary policy meetings by two major central banks before the end of the month. This comes after copper hit a nine-week high on Friday.

While the overall focus remains on trade talks between the U.S. and China, those with their thumb on the pulse of copper know that what happens with the banks can immediately alter the playing field for the red metal.

The European Central Bank is scheduled to hold its regular monetary policy meeting on Thursday. The U.S. Federal Reserve’s Open Market Committee (FOMC) has its money policy meeting on the calendar for next week. Both central banks are expected to ease their monetary policies as they lean toward more accommodative monetary policies in the midst of worries about slowing global economic growth. If the banks do pull the trigger, it should create a bullish scenario for copper. Lower rates tend to weaken the dollar, making base metals priced in the greenback cheaper for users of other currencies.

“It (policy easing) would support metal prices for a short period of time. (But) afterwards, euphoria will come down and the market will look at fundamentals,” Argonaut Securities’ analyst Helen Lau told Reuters.

“I expect the Fed to trim the Fed Funds rate by 25 basis points,” states frequent tED contributor Andrew Hecht of Seeking Alpha. “The devil will be in the details at the FOMC meeting. The statement and press conference will reveal the overall tone of the central bank for the rest of 2019. Another dovish comment loaded with the term ‘uncertainty’ that leaves the door open for more rate cuts this year would likely be enough to send stocks higher.”

Tensions Mounting with Iran

Tensions are a bit higher to start the trading week after Iran’s military seized a British oil tanker near the Strait of Hormuz on Friday. Apparently, Iran was responding to the U.K. capturing an Iranian vessel a couple of weeks ago. The world waits to see if Iran’s confrontation with the U.K. and the U.S. will escalate in the coming weeks, with the concern in the marketplace being a major U.S. military strike against Iran, which could disrupt oil shipping in the Persian Gulf. Such would be bullish on a number of markets, including safe-haven metals like copper.

Current Copper Prices

Copper prices tested the 55-week moving average resistance at $2.74 last week but failed to register a close above it. Prices are currently hovering in the mid-$2.70 range (click on the chart below for up-to-the-minute pricing). Speculative accounts reduced their net short positions for the first time in four weeks amid hopes that the U.S.–China trade talks would get back on track and encourage demand for the industrial metal.

Mine Business

Copper conglomerate Anglo American has announced it is seeking approval for plans to increase its copper output in Chile with a $3 billion investment near the capital, Santiago.

Reports out this morning say Chile, the world’s largest producer of copper, reduced its price projection for the precious metal for 2019 from $3.05 to $2.89 per pound due to a drop in demand from the world’s largest consumer, China. In its second-quarter report, the Chilean Copper Commission also reduced its 2020 projection from $3.08 to $2.90 a pound.

The drop is being ‘blamed’ on China “experiencing a cycle of economic slowdown that has undermined expectations for short-term demand” largely due to the trade war, the Commission said.

Projected global copper demand this year is 23.98 million tons, a 0.9% increase in 2018. Chile will likely end 2019 with a production of around 5.8 million tons, similar to last year’s level. The global world refined copper market showed a deficit of 96,000 tons in April, compared with a deficit of 42,000 tons in March, the International Copper Study Group said in its latest monthly bulletin.

China’s industry ministry said “arduous efforts” will be needed to achieve this year’s industrial output growth target, as trade protectionism weighs on exports and clouds the outlook for the world’s second-largest economy.

Further Reading

Why Copper is a Trade War Indicator from The Street.

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Jim Williams

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