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Copper Update: Up and Down Story Continues

By Jim Williams

Copper futures jumped to a temporary one-week high Monday after ten leading Chinese copper producers announced supply cuts for 2016. The group agreed to reduce refined copper output by 350,000 metric tons in 2016. That is about 4.4% of China’s 2014 copper output.

The group also called on the Chinese government to absorb surplus output through a purchase-agreement plan, as “the market price has detached from the industrial fundamentals.” The solidarity announcement was made in a joint statement.

“Finally, the producers are saying, ‘We’ve got to cut back on production to stabilize the prices,'” said Ira Epstein, a broker with Linn & Associates in Chicago.

The price then dropped on Tuesday after China released its manufacturing numbers. The official Purchasing Managers’ Index (PMI) came in lower than expected at 49.6 in November, compared with the previous month’s reading of 49.8 and below the 50-point mark that separates growth from contraction on a monthly basis.

Add to this the fact the U.S. manufacturing numbers were less than stellar – Bloomberg reported the Institute for Supply Management’s index dropped to the lowest level since June 2009, to 48.6. That is down from 50.1 in October.

Another cloud hanging over the price of copper is the upcoming decision by the Federal Reserve and what to do with interest rates here in the U.S.

“The fact that the Fed is hanging over the market has limited the impact of the talks in China,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago. “Especially because it’s China, and they’re talking about supply, that would warrant a sizable upside move in copper. It just shows how much investors are waiting on the Fed.”

Elsewhere, the International Monetary Fund (IMF) approved a measure to include the yuan in its Special Drawing Rights basket of reserve currencies. The basket is currently composed of four currencies, the dollar, euro, British pound and Japanese yen. Adding the yuan could provide China a chance at becoming one of the world’s top financial powers.

Major events ahead this week that could impact the price of copper include a crucial European Central Bank (ECB) meeting, speeches from Fed Chair Janet Yellen, OPEC’s conference in Vienna and the November jobs report.

We will keep an eye on all of the activity this week and as 2015 winds to a close. If anything major happens, we will have it here.

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