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New Year, Same Old Story For Copper

By Jim Williams

It took just one day of trading before China’s central bank had to take swift action to right the markets and push copper prices toward the positive on Tuesday.

Worse than expected Chinese manufacturing data released on Monday and a falling yuan carried the worry of the Chinese economy into 2016, starting the trading year with a bang.­

Surveys showed factory activity in the world’s second-largest economy dropped again in December. The news sparked a 7 percent slide in Chinese shares causing trading to come to a screeching stop Monday.

China’s central bank responded Tuesday by infusing 130 billion yuan ($19.9 billion USD) into the country’s financial system. The bank also took steps to support the yuan in the foreign exchange market. The moves by the bank helped stabilize the markets with the Shanghai Composite Index closed down just 0.3 percent Tuesday, with copper at just over $2.08 per pound.

NASDAQ end of day (Tues, Jan. 5) Commodity Futures Price Quotes for High Grade Copper

“Copper is rebounding…because Chinese authorities took a number of measures aiming at injecting liquidity to calm the storm in the Chinese stock market,” Boris Mikanikrezai, metals analyst at Fastmarkets told the Wall Street Journal. “This has had an indirect positive impact on commodities.”

“Manufacturing activity in China remains sluggish, services are relatively better, it’s like a two-speed economy,” said Xiao Fu, head of commodity market strategy at Bank of China International. “Even with expected base metals production cuts, risks remain skewed to the downside, especially prior to the Chinese New Year.”

Adding pressure to the price of the red metal is the prediction that the dollar is expected to post further gains this year based on the anticipated cycle of U.S. rate hikes. A strong dollar makes dollar-priced metals costly for non-U.S. investors.

Goldman Sachs in a recent report forecast copper at $4,500 at the end of 2016, stating, “We continue to see the risks surrounding our end-2016 forecast as skewed to the downside, with the main risks being Chinese demand and cost deflation.”

It looks like 2016 is going to be pretty much the same as all of 2015. All eyes will be on China on a daily basis. We will bring you the updates every week and provide special reports when warranted.

Happy New Year!


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