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Supply Concerns Push Copper Higher

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Supply Concerns Push Copper Higher

Copper prices rose in overnight trading, marking the third straight positive session for the red metal.

The main influence for the latest uptick came after copper producer Antofagasta Plc announced it cut its output forecast from Chile because of nationwide protests in the world’s biggest producer of the metal. Antofagasta doubled its output cut from Chile to about 10,000 tons yesterday, pointing to a bigger hit from the protests in the South American nation, which has seen weeks of demonstrations.

“Further signs of weaker copper output in Chile are emerging. Antofagasta said that Chilean unrest has slowed production,” ANZ said in a note.

Copper opened for trading this morning just under $2.70 a pound. Click on the chart below for current pricing.

Trade Talks Continue to Influence Copper As Well

Yesterday, the Chinese foreign ministry said the presidents of China and the United States had been in continuous touch through “various means”.

This comes on the heels of reports that China is asking President Donald Trump to remove more tariffs as part of “phase one” of the U.S.–China trade deal. Reports out of Washington say the Trump administration is weighing whether to drop existing tariffs on $112B of Chinese imports which were introduced at a 15% rate on September 1. “Phase One” would also include Chinese purchases of American farm goods, rules to deter currency manipulation and some provisions to protect intellectual property and open up Chinese industries to U.S. firms.

The world’s two largest economies said they had made progress in negotiations to end the damaging dispute, while upbeat manufacturing data from top metals consumer China added to the positive mood.

“We have not seen any real setbacks recently in trade talks and there’s scope for getting a ‘phase one’ deal,” Danske Bank analyst Jens Pederson told Reuters. “We have also been through another round of manufacturing PMIs that is pointing to a moderate recovery rather than further deterioration.”

The Fed Talks

As expected last week, the U.S. central bank’s FOMC cut the short-term Fed Funds rate by 25 basis points. The move was the third reduction since July 31. In the Fed’s statement and press conference following last week’s meeting, the central bank kept to its script with few changes. They said they will monitor economic data when it comes to future monetary policy decisions.

Copper and other industrial metals have seen the needle move towards the positive side since the Fed’s announcement.

Further Reading

According to Capital Economics chief commodities economist Caroline Bain, gold has lost some of its luster and the new “star performer” for 2020 will not be any of the precious metals, instead, it is time for the red metal to shine.

“We forecast that the price of copper will rally,” Bain highlighted. “Net-demand proxy suggests that growth in physical copper demand, though subdued, is still outpacing supply…Mine supply growth looks set to contract in 2019 and will probably remain weak in 2020 … We also expect demand to pick up gradually next year.”

You can read all of Bain’s comments on the topic here.

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Jim Williams

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