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Copper – The Trump Effect A Week Later

Copper – The Trump Effect A Week Later

 

By Jim Williams

The rocket-like explosion of the price of copper after last week’s presidential election has plateaued slightly as prices fell over half a percent Tuesday to around $2.50 a pound. Analysts say the market was due for a correction after the dramatic rally stoked by Donald Trump winning the election.

That “dramatic rally” was the highest one-week jump since 2011.

“Prices ran ahead of themselves,” said William Adams, head of Research at Fast Markets Ltd. “We’ll probably consolidate this week after the froth of last week.”

Froth…that’s a good word to use to describe the increase in price of copper. Prices for the red metal are up more than 19% from their October lows. While a jump was expected regardless of who won because both Trump and his opponent, Hillary Clinton, promised to increase U.S. infrastructure spending in their campaign – no one predicting this high of a spike.

Now, investors will play a game of wait and see. What will a Trump administration do to the economy? President-elect Trump’s choices for his cabinet could move the needle either way as investors seek a clearer understanding of the likely direction of U.S. government policy.

Carsten Menke, commodities research analyst at Julius Baer, said looking forward, Mr. Trump’s victory probably won’t have a big influence on the global balance of supply and demand for base metals, even if he delivers on his promise to boost infrastructure investment.

“Even an assumed 10% increase in infrastructure-related copper consumption would hardly matter on a global scale,” he wrote.

What about the new regime’s relationship with China?

What about the long-term future after the dust of last week’s election settles?

You may want to buckle up – copper’s ride is long from over!

“The copper market will start to enter a substantial supply deficit from 2021, pushing prices of the industrial metal higher”, the head of Chile’s national mining association, Diego Hernandez told the Copper 2016 industry conference in Kobe, Japan on Monday.

“Supply growth will likely begin to fall from around 2019 and the market will face a substantial deficit from around 2021 as it coincides with a recovery in demand growth,” adds Hernandez. “Driven by population growth and urbanization in China and other emerging countries, and less fossil fuel use amid climate change.

“Long-term price expectations should be much higher from 2018, if we are optimistic, or from 2020 if we are pessimistic,” he said. “Supply and demand will be tight, and then copper prices should go up,” he said, without giving specific levels.

As for the recent rally in copper prices, Hernandez said expectations for higher infrastructure spending in the United States following Donald Trump’s presidential election win was a major driver.

“Copper demand and supply are nearly balanced. But the prices went up only because of expectations,” he said, suggesting that the trend may not be sustainable.

There may be more questions than answers right now. We will keep an eye on the political and economic scenes and report here if the froth thickens, or settles.

 

 

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