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Seeing Red After Labor Day

Seeing Red After Labor Day

By Jim Williams

Labor Day is more than the ceremonial end to summer here in the U.S. It is also the traditional end of the seasonal lull for copper. The holiday-shortened week appears to have kept copper in check so far, as the red metal dropped slightly on Tuesday, with prices shifting towards last week’s two-month low as more news of rising inventories kept investors at bay.

Physical copper traders said demand was marginally increasing as the summer lull came to an end. This as inventories in London Metal Exchange warehouses saw a boost.

The latest data showed LME copper stocks jumped 6,450 tons to 334,975 tons, the highest in almost a year.

“Copper is still underperforming, and it’s still the worst performing metal this year,” Citi analyst David Wilson said.
“The LME build is slightly concerning, though that does seem to have been priced to a certain extent. We don’t know how much more there is to come.”

Three-month copper on the London Metal Exchange closed at $4,620 a ton, down 0.1 percent, after ending the previous day little changed.

The ebb and flow story of inventory seems to be a constant story in this column. But the white elephant in the room may just be the upcoming Federal Reserve meeting later this month.

“The last thing the central bank wants to do is to raise rates and, after some unforeseen shock to markets that follows, to have to turn around and lower them once again,” says tED contributor Andrew Hecht, in a recent Seeking Alpha article. “I believe that the Fed will pause in September and act at their December meeting. Even if they do move, the effects of the rate hike have already filtered through markets and it is unlikely that all hell will break loose. There are too many other issues facing markets that are more likely to make that happen.”

“We are cautious about the near-term price outlook for copper…in view of the pending U.S. Fed rate hikes…and a near-term oversupply threat in the global copper market” Argonaut Securities said in a report. “On the demand side, there is a lack of positive catalysts for demand mainly because of some cool-off in the property sector.”

A recent Reuter’s poll supports that sentiment. The poll predicts China’s home prices are expected to rise 10 percent this year due to robust demand, but will nearly stall in 2017 as more cities try to curb sharp price rises.

We will keep an ear to the ground for any trends related to supply and the impending Fed meeting later this month.

 

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