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Will Copper Bounce Back?

Will Copper Bounce Back?

By Jim Williams

Sources: COMEX and ICE

Copper opened this morning at $2.08 a pound ($4,571/ton). The 52-week high for copper was $2.78. The 52-week low, $1.96.

As we approach the mid-way point of 2016 we ask, where will copper go from here?

The red metal has fallen more than 3% since the beginning of the year. The uncertainty surrounding demand, the up and down of the U.S. dollar and a never-ending circus in China’s economy have left investors and those relying on copper scratching their heads.

Demand and supply expected to grow in 2016–2017

Sources: International Copper Study Group (ICSG)

A report recently released by the International Copper Study Group (or ICSG) suggests we could see a supply-demand balance in the global copper market over the rest of 2016 through 2017.

It its report, ICSG expects global production of refined copper to increase by 0.5% to reach 23 million tons in 2016. In 2017, refined copper production is forecasted to grow by 2.3%. In its previous report, the ICSG forecasted a deficit of 127,000 tons in 2016 and a surplus of 175,000 tons in 2017. In this latest forecast, ICSG expects the market to become balanced in 2016–17 because of the revision of usage and production outlook.

Stop Us If You’ve Heard This Before

Analysts believe the improvement over the next year and a half will come mostly from major copper consumers like China, India, the U.S. and EU-28 countries. The highest demand growth outlook is forecasted for China, the biggest consumer of copper. Copper demand in China is expected to rise by 2.5% in 2016 to reach 10.4 million tons. In 2017, the demand is expected to surge 2.2% to reach 10.6 million tons.

That’s a lot of numbers to digest, but one of the biggest may be the number of percentage points the Fed chooses. A U.S. Federal Reserve rate hike in June or July isn’t set in stone, but labor numbers suggest it’s time to pull the trigger, St. Louis Fed President James Bullard told CNBC. “There’s no reason to prejudge June,” he said, adding that the FOMC would look at the data and decide then.

Further Reading

FastMarkets published an in-depth copper forecast and analysis for Q2 2016. Here is their outlook for the second quarter, “We said in our January report we expected prices to reach a low in the first quarter and then to recover. They have done so; we would now expect prices to range-trade above $4,700 while the market waits for better news on the economic front. We expect a second-quarter price range of $4,700-5,200 per ton.

You can read their entire forecast here.


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