By Jim Williams
The up-and-down price of copper bounced on the positive side in the latest session, closing near the $2.30 mark on the COMEX. The bump in price was less than 2 percent, but any positive news is encouraging after the red metal hit a six-year low just last week.
The latest shift in price came after a surprise rate cut by China’s central bank on Tuesday. The People’s Bank of China said it cut interest rates by one-quarter of a percentage point and reduced bank reserve requirements by half a percentage point. This came after the Shanghai Composite Index closed down 7.6 per cent, after a similar decline on Monday.
“The base metals complex rallied strongly heading into the early afternoon” on the news of a rate cut, Standard Bank said in a note.
“We expect a modest recovery in Chinese sentiment and demand [in the fourth quarter of 2015 or first quarter of 2016], which may present a fresh opportunity to establish shorts,” Deutsche Bank said in a note.
Andrew Hecht wrote an article for Seeking Alpha on Monday titled, Copper Says It All About the Global Economy: Today’s Lows Are Tomorrow’s Highs.
In the article he states, “The trend of the copper price signals that a bad case of the economic flu continues to sweep across the globe. This is nothing new in 2015, just more of the same.”
He continues later saying, “Since…2011, the price of copper has done little but make lower highs and lower lows.”
Hecht: Copper is a reflection of China
As China was growing over recent years, particularly up until 2011, the nation was building infrastructure. This increased the demand for all construction materials including copper. The Chinese not only bought huge tonnages of the metal for these projects, but also they stockpiled even more for the future. While copper production comes from Chile, the world’s number one producer, China, the United States, Peru, Australia, Indonesia, Russia, Zambia, Canada, Poland and Kazakhstan all have significant output. However, it has primarily been the demand side of the fundamental supply and demand equation that has caused the price of copper to more than halve since 2011.
Hecht: A bounce on the horizon, but for how long?
When it comes to copper, it has been a case of today’s lows are tomorrow’s highs for over four years. Events in China could lead to even more selling in the weeks and months ahead. Sell rallies in the red metal; the global economy is having problems and the effects are rippling across all asset classes. Copper is a commodity on the front line in China and the price is likely to continue moving lower.
You can read the entire article here.
Looking at the Future of Copper
While no one can truly predict the markets, coming up in the next few columns we will look at the short-term forecast for the price of copper. The following chart is just a sample of what we will look into regarding the pricing forecast.
In an interesting article from Sky News, the writer examines why the price of copper could affect you. From cars to mobile phones, copper’s use is ubiquitous and its demand is also seen as a barometer for global economic health. Read the article for some great insight on practical ways copper can be an accurate reflection of the global economy.
Be sure to check back next week to see which way the price bounces.
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