By Jim Williams
The world waits to see what happens in Greek politics, but that is not stopping copper’s roller coaster ride. Prices for the red metal plummeted to a five-month low to start the week. Copper for July delivery closed Monday down 3.5 percent to $2.5380/pound on the Comex division of the New York Mercantile Exchange, its lowest level since February 2. The drop was the largest since January 14.
Experts say copper prices are being weighed down by sliding oil prices and escalating losses on Chinese stock markets. That’s right, Greece may be leaving the Euro, but the price of copper still runs through China.
Chinese leaders recently decided to suspend new stock sales and establish a market-stabilization fund aimed at fighting off the worst equities selloff in years, as concerns grow among the country’s leadership that the stock-market disorder could be spreading to other parts of the economy. A series of stimulus measures taken in the last several months has failed to make a dent in the country’s slowdown, leading to concerns that China’s demand for the industrial metal may continue to falter.
This tweet sums up the importance of copper, and eerily shows a comparison of the impact of copper:
The Business Insider has a related article titled, ‘The Great Fall of China’ is hitting other markets. Author Oscar Williams-Grut talks about the elephant in the room in the Greece talks – China’s tanking stock market.
Slippery Situation in Greece
As everyone knows by now, Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the country’s euro zone membership into further doubt. Then, on Monday, its finance minister resigned.
“What markets hate is uncertainty,” Societe Generale analyst Robin Bhar told CNBC. “There are enough headwinds at the moment, metals are well if not oversupplied and now demand in the two largest regions, China and the euro zone, is being undermined by uncertainty so we’ve got to move lower.”
The Greek vote did boost the U.S. Dollar. This is typically good news, but not for copper. A stronger U.S. dollar hurts demand because it makes copper more expensive for foreign traders. The deepening Greek crisis could continue to drive the U.S. dollar higher, which will keep the pressure on copper prices.
More on Copper’s Future
Copper’s fortunes depend not only on demand from China, though the nation is the world’s largest consumer, accounting for 42% of global trade; the red metal is also highly needed on the build-out of the electricity grid, as well as the wiring used in cars and consumer goods.
And unlike other commodities such as iron ore, the world’s largest copper miners have been cutting their production forecasts this year due to disruptions from strikes and engineering issues.
Another plus for copper could come from shrinking supplies of high quality concentrate in the first half of this year, due to disruptions in top producer Chile.
Based on these facts, analysts predict that any further problem will support copper prices, even if Chinese demand weakens.
For the current price of copper and up to the minute charts, click here.