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Copper: Turning the Calendar on a Roll

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Copper: Turning the Calendar on a Roll

Copper has had quite the journey since we last met. From the ongoing trade talks to impeachment and some tense moments with Iran. Not to make any of it sound trivial, but it has been a wild ride for the red metal, to say the least.

After bouncing around between $2.50 and $2.75 per pound for most of October and November, the metal widely used in power and construction shifted into high gear the first week of December. The red metal didn’t seem to care about the calendar changing to 2020, as the price moved above the $2.80 per pound level. For the year, copper averaged $2.72.

Breaking it down a little further, copper rose nearly 6% in December, its best month in two years. That gave copper a 4% gain for 2019. However, since the calendar did change to 2020 and everyone likes to talk in decades, the metal ended the 10-year span around 16% lower than where it began.

Copper prices opened this morning near eight-month highs ahead of the signing of a U.S.-China Phase 1 trade deal. Click on the chart below for up-to-the-minute pricing.

The official signing of the Phase 1 deal is scheduled for tomorrow. The South China Morning Post spells out what is expected in the deal.

“A lot of a continuation of progress on trade between the U.S. and China could lift the price of copper to the $3 per pound level or higher,” states frequent tED contributor Andrew Hecht of Seeking Alpha. “At the same time, a comprehensive trade deal may cause the price to revisit the all-time peak at well over the $4 per pound level. However, any disappointments over trade…or intensification of hostilities in the Middle East could burst the current bullish bubble in the copper market.”

“Copper and the rest of the base metals have come a long way already – partly driven by the trade talks, the Phase 1 deal and the improvement in the Chinese economy,” Danske Bank analyst Jens Pedersen told Reuters.

Pedersen doesn’t seem as enthusiastic about the trade talks and China’s economy improving any more than it already has. “Copper prices will probably level off around these levels,” he said.

The head of the Chilean mining trade union agrees with Pedersen.

Diego Hernandez, a veteran mining executive and president of Sonami, told reporters he did not expect demand for the red metal to increase significantly through 2020, leaving major miners cautious about ramping up supply without assurances of increased consumption.

“We’re expecting a price around $2.80 (per pound) …though it depends on the international scenario. But we don’t expect a very vigorous rebound in price,” Hernandez said.

Manipulator no more

The Trump administration has officially lifted its designation of China as a currency manipulator, more than five months after the country was added to the list. The nation has made “enforceable commitments” not to devalue the yuan and has agreed to publish exchange rate information, Treasury Secretary Steven Mnuchin said ahead of tomorrow’s signing.

Watching Inventory Levels

For months the threat of a long trade war limited mining activity and kept manufacturers from adding to their stocks. This has resulted in inventories shrinking drastically. The following chart shows that LME inventories fell from almost 340,000 metric tons from early September 2019 to 135,800 tons as of January 9, a drop of over 60%.


Source: LME/Kitco

Warehouse stocks on COMEX fell from 40,111 tons in mid-December to 35,601 ton, at last report. A decline of over 11%. Falling inventories are often a sign of increasing demand.


Source: LME/CME

Further Crunching of the Numbers per Reuters

China is set to release data this week including trade, GDP and new loans. December export and import growth is expected to have improved, helped by a rebound from a low base, a Reuters poll showed.

The China Association of Automobile Manufacturers expects a 2% fall in vehicle sales in the world’s largest car market this year after an 8.2% drop in 2019.

Be sure to check back here next week to see where copper goes after tomorrow’s Phase 1 signing.

 

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Jim Williams

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