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Happy New Year – Welcome Back China!

Happy New Year – Welcome Back China!

By Jim Williams

Copper investors were happy to have the Chinese holiday over and the markets back this week. On Monday, the market’s first day back from the week-long New Year break—and the day U.S. markets were off for President’s Day—reports out of China showed Chinese copper and copper product imports rose 7.3 percent in January. That hint of good news was enough to keep copper humming, but not enough to cause a celebration of New Year proportions, because overall imports were down 18.8 percent from a year earlier, and exports fell 11.2 percent.

Day two of trading after the Chinese New Year brought more good news as copper futures rose after Chinese new-loans data sparked hopes of greater demand from the world’s biggest metal consumer.

Copper also received support from gains in the yuan against the U.S. dollar, which makes it cheaper for Chinese buyers to stock up on this dollar-denominated metal.

Weekend comments out of China’s central bank weakened expectations that the yuan could face a sudden devaluation, pushing the yuan up to its strongest level so far this year.

Copper for March delivery closed up 1.1 percent Tuesday, at $2.0510 a pound on the Comex division of the New York Mercantile Exchange.

“Generally, comments that are positive for China are positive for base metals,” said Dee Perera from Marex Spectron in London.

It’s really a roll of the dice on which way the price might go when the ‘bubble’ we talked about last week bursts. We don’t want to read too much into it, but why would Sumitomo Metal pay Freeport-McMoRan $1 billion for a 13 percent stake in a mining pit in Arizona that produces 900 million pounds of copper a year if they didn’t think it was a wise investment? You can read more about the transaction and the speculation of the price in this Bloomberg article.

On the other end of the ‘bubble’ is the Daily News. Here is an excerpt from an article published today, “We aren’t as optimistic. We forecast a long-term price of $2 per pound and expect ebbing Chinese demand, which accounts for roughly half of the global total, to push prices below $2 in 2016 and 2017. We expect China’s copper needs to fall as real estate activity fades to a level more commensurate with underlying urbanization trends and as power spending shifts away from copper-heavy distribution to copper-light transmission. On the supply side, cost deflation, a flattening of the cost curve, and rising scrap supplies all threaten prices.”

So, depending on whether you see the copper glass as half empty or half full, you may want to continue to tread lightly when it comes to copper. The price is hovering around its worst level since 2009, has been cut by more than half since the resurgence in 2011, and can still go either way.

“Fundamentals must improve before any price recovery can be sustained, and we await evidence of a turn,” analysts at Barclays said in a note to clients.


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