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More Stimulation Efforts in China – Is It Enough to Help Copper Prices?

By Jim Williams

The People’s Bank of China cut its benchmark interest rate by a quarter percentage point on Friday. This was the sixth rate cut over the past 12 months, aimed at stimulating economic activity and boosting growth.

Friday’s cut came just days after Chinese government data showed third-quarter economic growth slowed to 6.9%, the first time since the global financial crisis that the country’s gross domestic product has grown less than 7%. Copper futures inched higher on Tuesday, as weak Chinese industrial profits data reinforced views that Beijing will roll out additional support measures for the world’s second largest economy.

Market players are anxiously awaiting the outcome of this week’s four-day meeting of China’s top Communist Party officials, the Central Committee of China’s Communist Party, where China’s economic and social policies for the next five years will be finalized. Topics are expected to include accelerating state-sector restructurings, redoubling efforts to reduce pollution and initiating reforms to face off slowing growth. Investors will be particularly focused on the government’s new annual growth target, which is expected to be set at 6.5%. The meetings conclude Thursday.

Predicting Pricing for the Red Metal

Frequent contributor Andrew Hecht, from Seeking Alpha, predicts we may see copper drop down around the $2.00 per pound level. “After a weak attempt to move higher at the beginning of Q4, (copper) is now ready to make another lower low. Key support for December copper futures is at the $2.2025 per pound level, the August 24 lows. The stars are lining up for the downside in copper. I expect this metal to follow-through lower, and my target remains $2.00 per pound. If the global economic landscape continues to weaken, the red metal could move even lower, perhaps challenging the 2008 lows. As a bellwether commodity, copper may potentially be signaling another leg down in the four-year bear market in commodity prices.”

You can read the rest of Hecht’s in-depth look at the price of the red metal in his Seeking Alpha article, Copper Says the Bear Market in Commodities is Not Over.

Revaluating Predictions… Not Good News for Copper

The Chilean Copper Commission (Cochilco) is also predicting a drop in the price of copper. In its quarterly report released Friday, Cochilco says copper prices will average $2.50/lb. in 2016. That is down from $2.53/lb. in 2015. This is down 7.4% from the $2.70/lb. they predicted in a report released in July.

Waiting on the Fed

Investors continue to play a wait and see game with the Federal Reserve. Market players are trying to predict when, and if, the Fed will raise interest rates for the first time in nearly a decade after recent economic reports offered a mixed picture of the U.S. economy.

The timing of a Fed rate hike has been a constant source of debate in the markets in recent months.

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