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Copper Update: Flipping the Quarter

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Copper Update: Flipping the Quarter

London copper climbed to a more than one-week high on Tuesday, thanks to stronger-than-expected manufacturing growth in China. The bump in price comes with a rather large shadow hovering over it as investors worry about a possible trade war between the U.S and China.

Futures prices for copper dropped 7.9% in the first three months of 2018 after almost hitting a four-year high in late December. This is the first quarterly decline for copper since 2015—a sharp reversal by one of last year’s hottest commodities.

As expected, China is playing a major roll in determining the market. First, the usual data reports where the country lays its cards on the table. China’s PMI report released yesterday shows growth in the manufacturing sector picked up more than expected in March as authorities lifted winter pollution restrictions and steel mills cranked up production as construction activity swings back into high gear. This is good news for the markets in general, but specifically for copper when it comes to construction.

The biggest news out of China is the shadow mentioned above. China is trying to trump the Trump administration’s recently implemented tariffs on steel and aluminum. China has retaliated with tariffs on imports of 128 American-made products. The tariffs, which are hitting such products as wine and frozen pork, are as high as 25%. “We hope that the United States will rescind its measures that violate World Trade Organization rules as quickly as possible,” said the Chinese Ministry of Commerce in an online statement. “Even though China and the U.S. have not publicly said they are in a trade war, the sparks of such a war have already started to fly,” said an editorial in the Chinese tabloid Global Times, per Reuters.

Despite all the unknowns in the global economy, the future of copper still looks promising.

“There are plenty of trading opportunities in the red metal,” Andrew Hecht of Seeking Alpha states. Hecht was spot on in Q1. He projected copper would correct from the end of 2017’s closing level, reach lows around $3 and above $2.90. Here is how he sees Q2 rounding into shape:

“I expect a continuation of volatility in markets across all asset classes in 2018 than we saw in 2017 the potential for a risk-off period has increased. Copper is entering its fourth month of price consolidation as we head into the second quarter of 2018. The red metal has not violated its technical support. If trade tensions ease, we could see a challenge of the late December peak and a new high for the copper market which would be a continuation of the price pattern that took hold of the industrial commodities sector more than two years ago.”

In Other Copper-Related News

In a signal of plentiful copper mine supply, China’s top copper smelters on Friday lowered their floor treatment and refining charges (TC/RCs) for copper concentrate by 10.3 percent for the second quarter of 2018.

Sumitomo Metal Mining Co Ltd, Japan’s second-largest copper smelter, said on Monday it planned to increase its refined copper output in the financial year that started on April 1 by 4.6 percent from a year earlier.

Chile’s state copper company, Codelco, said on Thursday it produced 1.734 million tons of copper in 2017, its second-highest output ever, despite persistently low ore grades at its aging mines.

A Glance Ahead

Looking ahead at the rest of the week, Investing.com has compiled a list of the main economic events likely to affect the markets.

Tuesday, April 3

New Zealand is to release data on business confidence.

The Reserve Bank of Australia is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.

In the eurozone, Germany is to release data on retail sales.

The UK is to release data on manufacturing activity.

Wednesday, April 4

Australia is to release data on retail sales and building approvals.

China is to publish its Caixin service sector index.

The UK is to release data on construction activity.

The euro zone is to publish preliminary inflation data.

The U.S. is to release the ADP nonfarm payrolls report and later in the day, the ISM is to publish its non-manufacturing index.

Thursday, April 5

Financial markets in China will be closed for a holiday.

Australia is to produce data on the trade balance.

The UK is to release data on service sector activity.

Canada is to publish data on the trade balance.

The U.S. is to release the weekly report on jobless claims.

Friday, April 6

Financial markets in China will be closed for a holiday.

Canada is to publish its latest employment report.

The U.S. is to round up the week with the nonfarm payrolls report for March.

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Jim Williams

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