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Predicting the Price of Copper Is A Coin Flip

Predicting the Price of Copper Is A Coin Flip

By Jim Williams

We don’t want to sound like a broken record, but predicting the price of copper depends on where you look. More importantly, how far into the future you look.

flip-coin

Each day the price of copper could be as iffy as if you flipped a penny. One day, it’s heads (home sales are up in the U.S) and the price is heading in a positive direction. The next day, the coin flip may turn up tails (Qingdao scandal) and the price tumbles down toward numbers analysts never thought could happen.

This week is no different.

Despite supply of the red metal recently going into surplus, the price has been holding steady around the $3.20 a pound mark.

That is up on the June half average of $3.12 a pound and comes as the market gets ready to absorb the planned resumption of copper concentrate supplies from Freeport’s mine in Indonesia like we have been reporting for the past couple of weeks.

All of these signs point to the expectation that, while the market is currently in surplus, it is not going to stay that way.

“A bit of a mixed bag so far as most metals continue fundamentally inspired price advances reinforced by narrowing spreads,” Michael Turek, Head of the Metals Desk at NewEdge posts in his daily metal watch. “Copper on the other hand, is something of a laggard as European physical premiums decline more than seasonality would suggest.”

Copper Declines Before China’s Factory Output, Retail Sales Data

Despite all of the talk of surplus copper fell for the second time in three days before July industrial production and retail sales data are released this week.

“Metals fell ahead of the data releases tomorrow as some July figures could be weaker than expected,” said Xu Yongqi, an analyst at Guotai & Junan Futures Co. in Shanghai.

Copper stockpiles tracked by the LME are down 61 percent this year to 141,375 tons, the lowest since July 2008.

According to a report by metal information provider Shanghai Metals Market, some small copper importers have delayed plans to purchase more copper as domestic banks have tightened credit to copper importers due to the negative impact caused by warehouse receipts scandal in Qingdao, Shandong Province – there’s that bad penny, always surfacing when you least expect it.

“It may indicate that even as underlying economic data in China improves, the growing scrutiny on China’s copper financing trade may weaken China’s apparent copper demand and keep copper prices under pressure,” Reuters reports, citing a research note by Commonwealth Bank of Australia.

Plus, domestic copper demand in July was weak due to seasonal reasons. But copper imports are expected to pick up throughout August as tighter domestic supply pushes copper prices up, prompting importers to buy more overseas in preparation for the upcoming demand peak in September and October.

Copper swings as geopolitical tensions cool

Reuters says copper steadied as appetite for risk grew following a move by Russia that soothed tensions over the Ukraine, while optimism over the outlook for China’s economy underpinned demand.

Russia’s defense ministry said that it had finished military exercises in southern Russia, which the United States had criticized as a provocative step amid the Ukraine crisis.

Mr. Daniel Hynes commodity strategist of ANZ in Sydney said, “The whole geopolitical theme has permeated quite strongly through the markets. Base metals have probably been a little weaker on the back of that.”

Robust Chinese export numbers on Friday pointed towards healthy metals use. But solid trade data has not happened yet globally, with particular questions over the impact of Russian sanctions on the European economy and its metals demand.

Mr. Hynes adds, “That’s probably why there’s a bit of hesitation so far by the markets to price in a full recovery.”

Three-month copper on the London Metal Exchange swung around the $7,000 mark to trade at $6,997.50 a ton. It ended little changed in the previous session when it finished the week lower for the second week in a row, with losses of 1.1%.

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