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Copper Slips A Penny Ahead of Fed Meeting Wrap

By Jim Williams

A weak dollar and a two-day Fed policy meeting took the wind out of the sails of any thoughts of copper continuing its first quarter climb on Tuesday, as the red metal finished the day flat. Copper ended down a penny to close at $4,945 after dipping to $4,881.50 earlier in the day.

The less-than-stellar movement puts a damper on the recent rise of the price of copper – having climbed 15 percent since January 15 when it plummeted to $4,318, the lowest since May 2009.

Investors appear to be waiting for the other shoe to drop—as in, any news out of the two-day U.S. Federal Reserve’s policy meeting wrapping up today. Experts across the board do not expect the Fed to raise rates, but Reuters is reporting that this week’s meetings may be just a formality for the Fed to raise rates in the near future if inflation and jobs in the U.S. continue to strengthen, regardless of what happens in China.

That being said, China is still a key figure in the global economy; specifically in the copper market. Recent reports out of China predict a possible increase in demand. Analysts warn against getting too excited about any news out of China, especially talk of demand growth. “One thing people will be looking at very closely is the inventory data in Shanghai warehouses. If it continues to build it will be a very bearish signal for copper,” said Dane Davis, a metals analyst for Barclays.

The underlying situation remains one of overcapacity across the majority of markets, and many producers facing significant balance sheet concerns.

CNBC asked Chilean copper miner Antofagasta’s Chief Executive Diego Hernandez if a recovery was in the tea leaves. “I think probably not this year,” said Hernandez. “I think that this year we will see prices similar to the areas that we have seen since January because supply and demand is tight, but we will see a small surplus and with these market conditions, any surplus affects the price.

“In 2008, 2009 we saw prices going down but really it was a financial crisis and not a commodity crisis,” adds Hernandez. “And, China was growing well and it really didn’t affect the industry. But, this time it looks like it will take a little longer especially because it’s about China.”

That appears to be the bottom line. No matter what happens here in the States, or the rest of the world…it’s about China. Despite that, we will keep an eye on the Fed and the dollar as well as look for any signals out of China that might keep the momentum going on the early 2016 charge by copper.

 

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