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Copper Waffles As Dollar Gets Stronger

By Jim Williams

Copper prices have bounced back and forth slightly to start the week as a stronger dollar and talk of the next interest rate hike have kept the red metal in limbo.

Copper Chart by TradingView

The U.S. Dollar reached a three-week high versus the yen in early morning markets thanks to a couple of Federal Reserve officials pointing to inflation as a key to the U.S. economy. The comments were made in the wake of last week's announcement that the Fed hiked interest rates by a quarter of a point. New York Fed President William Dudley was the first to talk about what is next as he said inflation in the U.S. should rebound with wages.

His comments were quickly followed by Chicago's Fed President Charles Evans making a statement about inflation—although at a 16-year low—missing the Fed's expectations. Both comments basically assure the Fed will keep raising interest rates in 2017. Click here to read more about Evans' thoughts. Or, here to read the Reuter's report on Dudley's comments.

What impact further interest rate hikes will have on the price of copper remains to be seen, but research firm BMI is confident the amount of copper available over the next four years will increase. BMI released a report Monday predicting copper production will climb over the coming years, as weak production growth is met by slowing yet persistent demand growth. BMI says in the short term, ongoing Chinese fiscal spending will improve the demand outlook and drive the global copper market tighter.

“In terms of volume, we expect global copper output to climb from 20-million tons in 2017 to 23.7-million tons by 2021,” said BMI in a statement.

The firm points to China as one of the key markets to help push the red metal's production higher over the next few years. BMI forecasts China's copper production to increase from 1.8-million tons in 2017 to two-million tons by 2021.

When asked his thoughts about the predicted production surge, frequent tED contributor, and Seeking Alpha scribe, Andrew Hecht, says – not so fast. “Copper is range bound. I do not see anything special in the market going on right now. Stocks have been moving lower on LME but the strong dollar is not bullish. At this point, the market will need to see advances in legislative initiatives, Chinese economic growth or a bit of both to breathe new life into the raw material markets.”

In other copper-related news
While many are waiting to see if President Donald Trump can cut through legislative roadblocks to fulfill his campaign promise about infrastructure, reports out today say state-owned China Railway Group has signed a $2.5 billion memorandum of understanding with Russia to build a high-speed railway in the country.



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