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Copper Slides Into Q4 on a Downward Trend

Copper Slides Into Q4 on a Downward Trend

Copper prices slid for a second session on Tuesday as growth in China’s manufacturing sector slowed last month, raising concerns over demand in the world’s top industrial metals consumer.

The official Purchasing Managers’ Index (PMI), released Sunday, fell to 50.8 in September from 51.3 in August, but remained above the 50-point mark that separates growth from contraction for the 26th straight month. Many analysts predicted a reading of 51.2.

Some investors see this as evidence that the escalating trade dispute between the U.S. and China could be sending a chill through the already slowing Chinese economy.

“Copper prices remained under pressure overnight, largely on the back of weaker-than-expected PMI numbers from China which raise concerns on the health of China’s economy, ANZ said in a note.

There appears to be a tug of war going on between the Chinese data and copper stocks. LME stocks have been on a downtrend for some time, falling below 200,000 tons. Copper inventories in LME warehouses sit at 199,125 tons as of this morning. That is nearly half of the level seen in late March and the levels are at their lowest since December last year.

Three-month copper on the London Metal Exchange fell 0.2 percent to $6,237.50 a ton in overseas trading.

The red metal opened for trading here in the state’s this morning at $2.77 per pound. For up-to-the-minute pricing click on the chart below.

Andrew Hecht, of Seeking Alpha, looks at the changing of quarters for copper. “Copper broke down in Q3 and fell to a low of $2.552 on the back of an escalation of the trade dispute between the U.S. and China. If labor negotiations break down at Escondida, we could see a sharp rally. Moreover, a settlement in the trade dispute could foster a higher price and new high in the red metal, but more movement towards a trade war would be bearish.

“As we move into Q4, the Chinese stock market could act as a proxy for commodities prices. The dollar and interest rates in the U.S. will also continue to guide raw material prices over the rest of 2018. Commodities are volatile assets and trading rather than investing is likely to yield optimal results.”

Fed Follow Up

As you most likely know, the Fed added a quarter percentage point last Wednesday to bring U.S. interest rates to 2.25%. The central bank said it foresaw another increase in December, followed by three more in 2019 and one in 2020. The higher interest rate didn’t impact copper too much last week. The red metal corrected 1.84% lower on the week and closed just over the $2.80 per pound level on the December futures contract.

Further Reading

Enjoy Copper’s Rebound While You Can

Forget the trade wars and fears of a market slump — commodities are back!

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Jim Williams

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