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Copper Tumbles Along with the Dow

By Jim Williams

Copper prices ended at a new 4½-year low Monday as investors worried about Greek debt, weak oil prices and a strengthening dollar.

The most actively traded copper contract for March delivery settled at its lowest level since June 7, 2010, falling 5.15 cents, or 1.8%, to $2.7660 a pound on the Comex division of the New York Mercantile Exchange.

The price drop appeared to be part of a larger move across the markets as investors shied away from risk in the first full week of trading after the start of the New Year. For a change, it wasn’t China topping the headlines this first week of 2015 – it was Greek politics. Investors appear worried about Greek sovereign debt, as some candidates in this month’s general election are campaigning on a platform of revisiting austerity measures intended to stabilize the country’s finances.

Copper’s losses came as the Dow Jones Industrial Average fell more than 300 points and the U.S. oil benchmark dipped below $50 a barrel. Meanwhile, the U.S. dollar rose 0.3%.

Slower global economic growth remains a worry for investors as well. “Lower growth figures across the world don’t really paint a bullish picture for copper,” said Adam Klopfenstein, a senior market strategist for Archer Financial Services in Chicago.

While Greece is the headliner, China is still a major player in the game. Analysts point to weak manufacturing data in China and the U.S. last week as contributing to the negative sentiment.

“Rising worries about Chinese growth, absence of Chinese buying, supply surpluses on the horizon and a strengthening dollar are the main drivers of lower prices this morning,” RBC Capital Markets said in a note. 

In the week ahead, investors will be turn their attention to Friday’s U.S. nonfarm payrolls report for further indications on the strength of the recovery in the labor market. Wednesday’s Federal Reserve meeting minutes will be also closely watched.

Looking back at 2014 – on the grand scheme of things…prices aren’t THAT bad
OK, so we know 2014 wasn’t a great year for copper prices. We’ve been writing about the up-and-down roller coaster ride all year. But, if you look back over the history of the red metal, copper prices have actually gained $2 over the past 14 years!

Click here to read an interesting article in Copper Investing News that takes a look at the historical price of copper.

Looking to 2015…and beyond
“Just given where inventories are at and the current supply stream that we have from existing mines, we don’t see any sort of breakout year,” Stefan Ioannou of Haywood Securities states. “If anything, I think the general consensus would be that the overall global demand for copper is definitely going to grow [over the next 25 years or so].”

Ioannou recently said, “Even at $3 per pound copper, basically everyone in production is making money. Even the highest-cost copper producers are producing copper at $2.50, $2.60 per pound. The copper price could arguably dip below $2.75 per pound, and you wouldn’t see a major impact on current demand fundamentals.”

On the other hand, he pointed out that if copper gets to $2.75 per pound, it will be difficult for producers to justify new development, which could lead to a supply crunch down the road. “Development that should be taking place today in anticipation of the need for new copper isn’t happening,” he said, noting that many producers have started to focus on cutting costs at existing mines rather than developing new projects in light of lower prices.

“We need a lot of new, big mines to come on to meet eventual demand. There’s no doubt,” Ioannou said, suggesting that a strain on supply could come around 2017 or 2018..

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