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Copper Update – Boost One Day, Bust the Next

Copper Update – Boost One Day, Bust the Next

By Jim Williams

A day after getting a shot of adrenaline thanks to an economic boost from the Chinese government, the price of copper took a hit based off of the aforementioned China’s economic growth—or, lack of growth.

Talk about building you up and then tearing you down! Those keeping a keen eye on copper are likely as confused as ever. On Sunday, Chinese President Xi Jinping pledged $124 billion toward his ‘Silk Road Plan’. The plan consists of projects designed to connect China to much of Asia, Europe and Africa. This news came on the heels of Chinese banks extending 1.1 trillion Yuan ($159 billion USD) in loans last month.

These two developments sent positive vibes as investors woke up Monday morning. Then the trading week started and more data was released. The numbers for April were released Monday, and showed China’s economic growth suffered a setback last month as worries about their slowing economic growth and tighter capital markets triggered selling of copper. China’s industrial output grew by 6.5 percent in April down from 7.6 percent growth in March.

“All of the slowdown in key macro data was from restructuring/reform and risk controls,” said Argonaut Securities in a report released by Reuters. “We think there is no chance of hard-landing in China as of now. That said, as there are a lack of drivers for new demand growth ahead… commodity prices may fluctuate in a narrow range,” the report concluded. 

Frequent contributor Andrew Hecht makes a brilliant analogy, “Commodities tend to take the stairs higher and the elevator lower.” For copper, he nailed it – the price of copper seems to move higher slower, but when it falls, it falls fast. The only time in recent history the red metal has bucked the trend was after last November’s presidential election. But…

“Many commodities prices are back where they were before the election of President Trump,” Hecht adds. “And others are heading in that direction over recent sessions. The moment of truth for industrial commodities will likely come down to will they or won’t they approve and legislate for infrastructure rebuilding in Washington, D.C., this year?”

Click on the chart below to visit fx.daily.com and see up-to-date copper pricing. Hover over November 8, 2016 and you can see copper is still well ahead of pre-election day, but the price difference is getting closer and closer each week.

Related Topic – Further Reading
Andrew Hecht, quoted above, has written a great article on the impact the dollar has on the market. Read his Seeking Alpha article, King Dollar Has Lost Some Mojo.


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