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No Rise In Interest Rates Raises Interest In Copper

By Jim Williams

Last week’s Federal Reserve decision to not raise rates shot the price of copper to a 20-week high on Monday. The price leveled out on Tuesday thanks to a drop in oil prices and doubts the recent rally will continue. Copper for May delivery finished down 0.3 percent Tuesday to $2.2980 a pound on the Comex division of the New York Mercantile Exchange.

That little hiccup has not kept copper prices from rising more than 7 percent in March on hopes of increased stimulus from China and a sharp drop in the U.S. dollar. In fact, the red metal has gained 17 percent since the middle of January. Despite the recent run of success, many investors don’t believe the rally will continue.

Analysts from Barclays posted a note this week saying, “The bad news is that the dollar alone is not sufficient to give direction to prices. In other words, fundamentals still matter, and in a world where a weaker dollar and poor fundamentals push the copper price in opposite directions, we expect the latter force to win out.”

Some analysts appear to be waiting to see if signs of stronger demand in China can remain a reality.

“It’s a seasonally stronger time of year,” said Investec analyst Marc Elliott. “Chinese consumers are always more active at this time of year. Let’s see if it holds up into the summer.”

Leading financial, advisory, investment and funds management leader Macquarie adds, “Our latest China copper survey shows some positive signals for the copper market: End-user demand started to show clearer recovery from seasonal softness, fabricators plan to raise production rates and restock copper, and sentiment remains positive across the industry chain.

“However, it is still unclear whether demand growth is more than seasonally driven, but expectations toward demand recovery seem to be building with positive macro numbers,” concluded Macquarie.

Frequent tED contributor Andrew Hecht wrote in Seeking Alpha that we should continue to expect the unexpected. “The fact that central banks continue to pump stimulus into markets keeping interest rates artificially low means that they see a problematic horizon in terms of the global economic landscape,” says Hecht. “The current state of markets and economies around the world presents a supportive case for precious metals.” You can read his entire article here.

We will continue to keep an eye on copper and report it here as it pertains to the electrical industry.

 

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