By Jim Williams
After plummeting to six-year lows again on Monday, copper futures finally saw a slight increase yesterday. Experts say a weaker dollar and upbeat U.S. economic data are the reasons for the slightly higher price. The most actively traded contract, for December delivery, was up 1.8 percent, or just about four copper pennies, at a hair under $2.06 a pound on the Comex division of the New York Mercantile Exchange.
A day earlier prices plummeted to $2.0210 a pound, the lowest level since May 2009. News of brighter economic data from the U.S. helped push copper futures into the positive on Tuesday.
The economic report showed the U.S. economy grew 2.1 percent in the third quarter. This was up from the estimated 1.5 percent. Meanwhile, the national S&P/Case-Shiller Home Price Index rose 4.9 percent.
“The market is down so much that anything that looks a little positive will cause some short covering,” said Ira Epstein, a broker with Linn & Associates in Chicago.
The weaker dollar also lent support to the increase. Copper is priced in dollars and becomes less expensive for holders of non-dollar currencies when the greenback weakens.
“The U.S. dollar has been the principal driver,” said John Meyer, an analyst at broker SP Angel.
“The fall in metal prices was overdone. That’s why a mild recovery has happened,” said Gnanasekar Thiagarajan, director of Commtrendz Risk Management. “But the underlying sentiment is still weak because the market is concerned about China’s demand.”
Barclays, the British multi-national banking and financial services company headquartered in London, has an interesting take on the future of copper:
“First, many of the copper cuts that have been announced so far in this cycle do not reflect a permanent reduction in supply. For example, those announced by Glencore at its operations in the DRC and Zambia merely represent a temporary hiatus so the operations can be modernized, new equipment installed, costs cut and production started up again by 2017.
“Second, there is a huge amount of new supply financed when copper prices were high which is due to start hitting the market from next year onward.
“Third, the demand trend on which next year’s balanced market is predicated looks extremely fragile as China continues to slow at a rapid pace, with little attempt by the government to offset it by using the kind of aggressive increase in infrastructure spending that has proved such a boon to metals demand in the past.”
Further Reading
Will Copper Fall Below $2 a Pound?
Copper Miners Pain Doesn’t Stop Buildup
Tagged with China, copper, data, economy, Fed, tED