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Talking Copper – The Fed Reaction and Mining Strikes

Talking Copper – The Fed Reaction and Mining Strikes

By Jim Williams

The copper market has been buzzing since last week’s Federal Reserve meeting. The initial reaction to the Fed’s decision to hike interest rates didn’t do much to the price of copper. In fact, the day after the increase, the red metal bucked expectations and went up as well.

Fed president in Chicago, Charles Evans reportedly said he would support three interest rate hikes in 2017 if economic improvement continues, and four increases if inflation moves above the central bank’s 2 percent target.

That was last week. Yesterday copper prices fell to a one-week low on expectations that supply disruptions in Chile and Indonesia could be coming to a close.

Reports out of Chile say BHP Billiton Ltd., the majority-owner of the Escondida mine, and union workers are expected to hold talks which could lead to a settlement at the world’s largest copper mine.

Meanwhile, in Indonesia, there are reports that Freeport-McMoRan Inc’s Grasberg mine has resumed production of copper concentrate after workers walked out more than a month ago.

The potential for those supply disruptions to end outweighed the weaker dollar and major flooding in Peru, which may disrupt mining operations and transport in the world’s second-largest copper producing country.

So, what does all of this mean to the current and future price of copper?

Seeking Alpha, a crowd-sourced content service for financial markets, posted this morning that copper investors should be in waiting mode right now. Momentum has faded, and that is the ultimate test for investors. They also added that this is not a time to enter a position. Copper will be very bullish once above $2.85, and bearish once below $2.50. In between those prices, copper is neutral.

Last week, Seeking Alpha’s Andrew Hecht said his price stop for copper is $2.32 per pound. When asked to elaborate, Hecht said, “I think copper demand will increase with all other industrial metals. I see copper above $2 and the move to $1.9355 in January 2016 as an over extension on the downside. The strikes and labor issues could cause some spike rallies.”

We will keep an eye on the potential talks in Chile and Indonesia to see what happens with striking miners and what impact that will have on the price of copper.

 

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